TORONTO – The outlook for Canada’s traditional fixed-line telecom industry in 2006 is poor, while things are looking better for wireless services and the cable industry, according to the latest credit ratings report by Standard and Poors.
Competition for wireline business will hurt incumbent telcos (Aliant, Bell Canada, Manitoba Telecom Services, and Telus) as the cable operators and other players enter the telephony market, the report says. Likewise, though, the cablecos (Cogeco, Rogers, Shaw, and Videotron) will face more competition from telephone operators providing video services via DSL. “The blurring of boundaries between wireline, wireless, and cable will continue,” the S&P analysts say.
Because of competition in wireline, there are negative outlooks for Aliant, Bell, and MTS, “which have greater exposure to voice revenues.”
Wireless, however, will grow, helping Rogers and Telus “continue to benefit from subscriber growth and stable operating metrics in 2006,” the analysts say. “Wireless should continue to shine given relatively low penetration in Canada, leaving ample room for growth, as well as a stable competition environment with just three nationwide wireless operators.”
Cablecos will benefit from growth opportunities in cable telephony, digital TV, and high-speed Internet services, though they face competition from telcos in video services, and other video streaming over broadband, the report says. “In addition, the potential for longer-term pricing pressures in local services, where the cable companies are currently making substantial investments, could make for slim returns on those investments.”
The long-term prognosis for all telecom and cable services is healthy, the report says. “The ratings will not necessarily be negatively affected by these industry trends, but rather will depend on both the telecom and cable companies’ ability to manage the transition of their businesses to an Internet protocol-centric operating model,” the analysts say. “Rapid technological change is something both cable and telecom operators have been successfully grappling with for many years, and so it is a risk that should be manageable by both camps. In the longer term, we see a relatively balanced industry, where the cable and telecom operators continue to dominate, but with a multitude of threats stemming primarily from different Internet applications that will challenge traditional business models.”
Some key trends are:
• Broadband transforming the industry, with expected subscriber growth. Right now, cable and telecom have a roughly 50/50 split of subscribers.
• Increasing pressure in the long distance market as VOIP rolls out to a growing number of high-speed Internet customers. There will be “intense price competition,” the report predicts.
• Profitability will increase “for those fortunate enough to own a wireless asset” since Canada’s penetration “lags most of the developed world.”
• Competition will intensify in video services as cable continues to offset losses to DTH by offering digital TV and high-speed Internet. Meanwhile, the telcos will continue to offer video services to their HSI customers.
