OTTAWA – A sharp increase in telecommunications prices over the past year combined with slower economic growth are affecting Canadian consumers' ability to afford their current telecom services, according to The Conference Board of Canada.
In the latest Outlook for Canada's Telecommunications Industry report, telecommunications industry revenues are forecast to increase by only 2.3% this year, the smallest increase since the 2009 recession, while the industry's GDP is expected to expand by less than 1%.
The telecommunications price index rose by almost 5% in 2014, most likely driven by wireless price increases associated with the adoption of the CRTC's wireless code in 2013. Having to bear the sharp hike in the cost of monthly wireless plans, some consumers had no choice but to try to reduce their spending on other types of telecommunications services, adds the report.
Price increases this year are expected to remain strong at 3.7% due to the carryover effect of the significant increases seen in 2014. In 2016, however, price increases are expected to moderate as big telecom carriers will likely realize that consumers do not have room in their household budgets to bear higher wireless prices without decreasing demand for other telecom services, the report continues.
That said, the telecommunications industry has managed to maintain a very stable pre-tax profit margin, averaging 13% since 2007, and, with little threat to the incumbent's dominance in the wireless segment, pre-tax profits are expected to end 2015 at $8.3 billion.
The report added that the move by Canadian TV providers to introduce their own video-on-demand services, such as shomi and CraveTV, will allow them to better compete and protect their market share, helping to offset weaker growth in the traditional paid-TV segment. In addition, it may also help telecom carriers compete with the growing range of premium content now available directly from television networks.
"Although consumers' thirst for wireless data is set to grow at a rapid pace for the foreseeable future, their capacity and willingness to spend more on telecommunications services will not follow suit," said Conference Board of Canada senior economist Kristelle Audet, in the report’s news release. "The amounts households are dedicating to TV, Internet and wireless services will continue to be constrained by slower growth in disposable income and high debt burdens."
