Recession won

Canadian telecommunications service providers will cut nearly 7,000 jobs this year and another 2,000 in 2009, but the overall state of the industry is healthy, according to the Conference Board of Canada, a non-profit think tank.

“We’ve seen really strong productivity gains in recent years,” said Michael Burt, the board’s associate director for industrial outlook. “The industry’s been able to increase sales without having to hire as many employees. We expect this productivity to continue, so with slower growth in sales, this means employment growth will be fairly weak for the industry in the near term.”

The board Tuesday released its Autumn 2008 Canadian Industrial Outlook for Canada’s Telecommunications Industry, the same day the Bank of Canada declared Canada is entering a recession. The board predicted revenues for telecom providers will increase an average of 2.3 per cent per year for the next five years, when measured in constant 2002 dollars.

“I think they’ll be better off than some other industries,” said Mark Tauschek, senior industry analyst for London, Ont.-based Info-Tech research Group. “They are in for not nearly as rough a ride as retail.”

According to the Conference Board report, the Canadian telecommunications industry employed 163,000 in 2007, and the board predicts that will drop to 156,300 this year and 154,400 in 2009, followed by increases of fewer than 1,000 per year until 2013.

“The job cuts are not staggering,” Tauschek said, adding many of these cuts will be due not to layoffs but to attrition.

The Conference Board report comes on the heels of AT&T Corp.’s announcement last week that it will lay off 12,000 employees next year, while adding jobs to its wireless, video and broadband units.

“It’s essentially in the wireline division where we saw layoffs and that’s not surprising,” Burt said. “That’s a segment of the industry that’s seen shrinking demand but when you look at the industry as a whole, because demand in other segments of the industry is increasing, layoffs in wired businesses are being offset by increased employment in other segments of the industry.”

Tauschek does not anticipate huge job losses at Canadian carriers.

In the report, the Conference Board said wireless data services are accounting for an increasing share of wireless revenues, though the growth in price will be “limited” due to the new competitors resulting from last summer’s Advanced Wireless Spectrum auction.

Discontent among wireless data users is another factor. For example, Burt said, when Rogers Wireless first announced earlier this year it would offer Apple Inc.’s iPhone, its pricing plans resulted in “ a lot of pushback from consumers.”

Tauschek agrees new wireless entrants will result in price cuts for Telus Mobility, Bell Mobility and Rogers Wireless.

“The big three have had it pretty easy over the last decade or so where they were able to make some pretty sweet profits,” Tauschek said. “That will start to get squeezed a bit.”

The Conference Board forecast that between 2009 and 2013, revenue will grow by an average of 3.4 per cent per year. Prices for services other than wireless will outpace inflation.

In early 2007, the Conference Board predicted the erosion of traditional wire line markets would result in a slowdown, and voice over IP would have a “disruptive effect.”

The report released Tuesday is for service providers such as Bell, Rogers, Telus, Aliant, MTS Allstream, Videotron, SaskTel and Cogeco. It did not cover the outlook for equipment manufacturers such as Nortel Networks Corp., which announced last month it will eliminate about 2,500 positions by the end of next year.

The Conference Board included equipment manufacturers in a separate forecast for computer and electronic equipment manufacturing, which was released two weeks ago. In that report, the board predicted profits would fall by 22 per cent this year and another 4.6 per cent next year, though the wireless equipment industry would be strong.

The classic definition of a recession is two consecutives quarters of declining gross domestic product. Statistics Canada reported Dec. 1 the gross domestic product increased by 0.3 per cent in the third quarter, after edging up 0.2 per cent during the second quarter.

But as it announced Tuesday a cut to the overnight lending rate to 1.5 per cent, the Bank of Canada said Canada is “now entering a recession.”

Canada’s biggest export customer, the U.S., is in a recession. Published reports last month quoted the Organization for Economic Co-operation and Development as predicting Canadian gross domestic product would shrink three quarters in a row, starting with a contraction of 1.6 percent this quarter, 1.4 percent in the first quarter of 2009 and 0.3 percent in the second quarter.

In its industrial outlook, the Conference Board predicts weaker demand for telecom services from the financial service industry. But this does not mean the industry is in trouble.

“This is an industry that will do above average through the expected economic weakness next year,” Burt said. “We do expect to see slowdowns in sales because people will cut back a little on the services that they’re demanding, but people will still want their phone They will still want their Internet access.”

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