TORONTO — Canadian telecom providers spend about 5.3 percentage points more on capital expenditures (as a percentage of revenue) compared to telcos in other countries, due to higher factors of production largely driven by geography, scale and spectrum costs, according to a new study from PricewaterhouseCoopers Canada.
PwC’s The importance of a healthy telecommunications industry to Canada’s high-tech success report is a follow-up to its study earlier this year, Understanding affordability of consumer mobile wireless services in Canada, which we reported on here.
According to the new study, these higher factors of production (cost drivers) require Canadian telcos to have higher EBITDA levels than comparison countries to maintain investment levels while keeping healthy free cash flows.
“An unhealthy Canadian telecom industry, where telcos lack adequate free cash flows to invest in 5G networks, would be unable to invest in 5G at the same pace as major trading partners,” says the report.
As the backbone of so-called Industry 4.0, 5G network infrastructure is expected to cost up to 70% more than 4G, the study says. PwC cites a recent report by CWTA and Accenture which estimated $26 billion will need to be invested between 2020 and 2026 for 5G rollout in Canada.
“That kind of an investment will require a healthy telecommunications industry, with the cash flows that enable investment, and the regulatory conditions that incentivize investment,” says the report.
Canadian telcos have historically helped to ensure a healthy industry by investing 40% more on capital expenditures as a percentage of revenue versus comparison countries, PwC says in the report. For Canada to maintain economic competitiveness against major trading partners, such as the United States, China and South Korea, all stakeholders in the 5G ecosystem will need to cooperate, PwC says.
5G stakeholders include the telecom operators, the regulator, the government, software and hardware manufacturers, as well as consumer support organizations.
“To maintain this investment level in capex and spectrum, Canadian telcos will need to operate in an industry that supports healthy free cash flows through appropriate levels of competition and government intervention. If not, network investment in Canada is likely to suffer,” reads the report.
The PwC study is based on information sourced from OECD, World Bank, Recon Analytics, World Economic Forum, Government of Canada, CWTA, Statistics Canada, Capital IQ, and Policy Tracker, among other sources.
To access a copy of the report, please click here.
