NEW YORK – Thanks to incoming competition, there is a new expectation of increased pricing pressure in the Canadian wireless sector – which has prompted the influential Moody’s Investors Service to change its outlook on the country’s wireless telecommunications sector from positive to stable.
The outlook expresses Moody’s expectations for the fundamental credit conditions in the industry over the next 12 to 18 months. The rating agency does not believe that there will be significant credit-rating changes for these companies over this period, barring further consolidation activity.
"We lowered our outlook on Canada’s wireless industry to stable from positive, based on our view that competition in the wake of Canada’s wireless-spectrum auction will put pressure on pricing," says the report’s lead author, Moody’s senior vice-president Dennis Saputo.
The outlook for the U.S. wireless sector is stable as well.
The stable outlook for both countries wireless industries is based on an expectation that revenue growth, though slowing, will remain healthy.
"Revenue, earnings and cash-flow growth for the largest operators should remain strong," says Saputo, "even amid slowing subscriber growth and increased competition."
Moody’s said it expects growth in data usage will offset declining voice revenues, keeping average revenue per unit close to current levels.
Competition is heating up, added Saputo, pointing to the proliferation of unlimited calling plans by wireless carriers in the United States. Emergence of these plans "suggests that margin pressure could result if marketing costs rise or usage patterns change significantly," he said.
Competition in Canada has traditionally been less intense than it is in the U.S., notes the report, but Moody’s anticipates the recent auction of spectrum will transform the market.
"The three national-service providers will be joined by a group of regional competitors that, in aggregate, may be viewed as equivalent to a fourth player," added Bill Wolfe, Moody’s vice-president and senior credit officer.
