TORONTO – While data will account for 19% of wireless service revenue – and all of 2009 service revenue growth in Canada – a 2% decline in Canadian wireless service ARPU is predicted by Convergence Consulting Group.
Growing adoption of smartphones/data devices, “which we estimate will reach 23% by year-end 2009 (and break 50% in 2014), is helping to drive data revenue growth,” says the report, as voice revenue has moved into negative territory.
As for the new entrants (and taking into account that Globalive likely won’t be in the market in the short term), “based on what we project new entrants pricing will be and the experience and metrics of the four major U.S. wireless providers over the last three years, we are forecasting Canadian data growth will not be sufficient enough to maintain overall incumbent ARPU growth going forward,” reads the report.
According to Convergence, data is 30% of service revenue (and effectively all 2009 service revenue growth) in the U.S., approximately double three years ago,” and “the U.S. is at least two years ahead of Canada in terms of data revenue as a percentage of total service revenue.”
With cheap competitors hammering away on price, Stateside, coupled with unlimited voice, text and data packages, AT&T, Sprint, T-Mobile, Verizon have countered, “but are still on comparable package prices on average 35%-50% higher than the discount players. The net result for the four major carriers has been no ARPU growth over the last three years,” it reads.
Convergence, as is everyone, is expecting Canadian newcomers to use lower prices as a bat to smash their way into the consumer consciousness, to good effect.
“(W)e forecast new entrants’ will have 7.2 million or 22.5% of Canadian wireless subscribers by yearend 2014. We forecast Canadian subscriber additions will average 1.8 million/annum 2010-2014 as opposed to 1.45 million 2006-2009, mainly due to lower prices (based on what the consumer receives for the price), and wireless penetration at 91% year-end 2014, up from 68% year-end 2009,” reads the report.
Wireless substitution will also accelerate thanks to lower wireless pricing, which will negatively impacting cable & telco wireline. “We forecast wireless-only households will reach 23% of Canadian households year-end 2014, up from 8% at present. We forecast 55% of the incumbents’ residential telephone wireline loss in 2011 will come from wireless substitution, up from 21% in 2008,” reads the report.
Convergence also believes that excluding spectrum expenditure, wireless players (or sometime to be players) Videotron, Shaw and EastLink “will be EBITDA positive before the end of their second year of operations, DAVE and Public Mobile will be EBITDA positive in their third year of operations.
“New entrant cablecos will have positive free cash flow by the end of their second year of operations, DAVE and Public Mobile will be positive by the end of their third year. Positive cumulative pre-tax free cash flow for Videotron in year five, Shaw by the end of year five, EastLink by the end of year six; whereas we forecast DAVE and Public Mobile, will need approximately eight years to realize positive cumulative pre-tax free cash flow.”
But, without Globalive, the report forecasts DAVE and Public will collectively see 900,000 more subscribers, and better financials.
As well, notes the report, the incumbent flanker brands (Fido, Koodo, Virgin) are in many cases up to 30% less than incumbent offers, “hence the incumbents have already set in price cuts. We do expect the incumbents to hit back with lower priced all in packages as the major U.S. wireless providers have done,” it says.
“However, we do not expect drastic moves (would be a death knell for ARPU, EBITDA, stock price, etc) by the incumbents especially out of region, given their lack of competitive advantage, but we do expect in-region to see bundle discounts and retention offers improve.”
