TORONTO – In seven years, newcomers to the wireless game in Canada will have about 8.2 million Canadian wireless subscribers (about 24% of the market), says a new report published Tuesday by Toronto’s Convergence Consulting Group.
And just about all of those subs will be tied to three big new wireless players, Globalive, Shaw Communications and Videotron.
At the end of 2015, those three companies “will each have a 7% share,” says the report.
Approximately 75% of new entrant subscribers will be consumer postpaid. Those customers currently comprise 53% of all Canadian wireless subscribers, but the company estimates that will rise to 60% by 2015.
The convergence report says overall Canadian subscriber additions will average 1.82 million per year from 2010-2015 as opposed to 1.45 million 2007-2009, mainly due to lower prices. Wireless penetration will reach 96% by year-end 2015, up from 64% at the end of this calendar year.
Data will be the key driver of growth in the wireless space accounting for 42% of network service revenue growth in 2008, up from 32% in 2007, and 53% in 2009, estimates Convergence. Data made up 55% of network service revenue ARPU growth in 2007, “and we forecast data will make up all of ARPU revenue improvement based on negative growth in voice ARPU in 2008,” adds the report.
“As Canada’s only GSM player, Rogers currently maintains a key advantage (speed, handsets/devices, roaming) in the data space. Bell continues to be, in terms of the big three incumbents, the laggard on key metrics including a higher share of prepaid customers, and lower voice and data ARPU.”
Excluding spending on spectrum, Convergence is predicting Videotron will be EBITDA-positive in its second year, Shaw in its third year, EastLink in its third year, and Globalive in its fourth year of operations. The cablecos will have positive free cash flow in the third year of operations, and Globalive will be positive in its fifth year.
New entrant cablecos will do well in the wireless consumer postpaid market, as they have recently done with wireline VOIP telephony, says the report. By year-end 2008 Canadian cablecos will have 24% of residential wireline telephone subscribers, up from less 1% in 2002.
The cable operators’ competitive advantage “comes from their ability to up-sell wireless especially to their large and ever growing multi-product customer bases, competitive bundle pricing (which will see a deeper wireless discount) and convenience. We expect both new entrant cable and independents will introduce MetroPCS-style pricing and packaging,” says the report.
“Based on our models, we forecast Videotron will represent 30% of the Quebec market, Shaw 23% of the Alberta/BC market and 14.5% of the Manitoba/Saskatchewan market, and EastLink 19% of the Atlantic market by year-end 2015… we forecast Globalive will represent 12% and DAVE 5% of the Ontario market by year-end 2015. We forecast DAVE/Globalive will represent 8% of the Alberta/BC market by year-end 2015, and that Globalive will represent 6% of the Atlantic and 5% of Manitoba/Saskatchewan respectively by year-end 2015.”
Alberta/BC and Quebec will see the most market impact from new entrants, Ontario the least, according to the research company. Over the 2015 timeframe, we forecast Bell, Rogers and Telus will gain more consumer postpaid customers in their traditional residential wireline telephone and cable footprint regions, than out-of-region.
The incumbents will increasingly rely on multiproduct bundling to protect themselves from these aggressive newcomers.
“Currently 55% of Canadian residential subscribers take either two and 30% take three products with either their cable or telephone company (Internet, TV, wireless telephone, wireline telephone), a consumption pattern that will continue to increase going forward,” says the report.
“We have not given much weighting to either Bell or Rogers’ out-of-region consumer offers. Bell offers TV service through ExpressVu and Internet access through Inukshuk across Canada, and Rogers offers Internet access through Inukshuk and telephone service (VOIP and circuit-switched) across Canada.”
Over 85% of ExpressVu’s subs (now called Bell TV) are within Bell’s Ontario/Quebec/Atlantic footprint. Neither Bell nor Rogers have seen much take-up for their Inukshuk offers’ as they are not speed/price competitive when facing the majority of other cable/telco offers. (Bell and Rogers co-own fixed wireless company Inukshuk.)
“Rogers out-of-region telephone offer has also seen very little take-up given its pricing and the competitive market place for fixed local/LD voice services,” continues the report, which says neither big blue or big red have a convincing consumer multi-product bundle value proposition outside their residential telephone or cable footprints.
“Thus out-of-region, without competitive bundled multi-product offers (or deep price cuts which we do not anticipate): Bell and Rogers will have a difficult time in both maintaining their consumer postpaid subscriber bases and in gaining new consumer postpaid subscribers in Alberta/BC,” says Convergence.
“Rogers and Telus will have a difficult time in both maintaining their consumer postpaid subscriber bases and in gaining new consumer postpaid subscribers in Quebec. Telus will have a difficult time in both maintaining its consumer postpaid subscriber base and in gaining new consumer postpaid subscribers in Ontario. Rogers and Telus also face potential losses in MB/SK, and Telus also faces potential losses in the Atlantic.”
The Convergence research goes on to say that Rogers has the most potential exposure, with approximately 68% of its consumer postpaid wireless subscribers beyond where it offers cable services, followed by Telus with approximately 51% of its consumer postpaid wireless subscribers beyond where it offers other residential products. Bell is the least exposed with just about 14% of its consumer postpaid wireless subscribers outside its wireline footprint.
However, despite the impact of new entrants, Convergence says by 2015 Rogers will still be Canada’s largest consumer postpaid player, followed by Bell and Telus (the same order as present). “We forecast that overall incumbent ARPU will decline by 10% between 2010-2015, and EBITDA margins will also decline. In addition to wireless impact we forecast Telus will continue to lose residential wireline telephone share to Shaw and increasingly to wireless substitution, and that Shaw will continue to maintain its share lead against Telus on TV and residential broadband,” reads the report.
“In the same regard, Bell will continue to lose residential wireline telephone share to Rogers and Videotron and increasingly to wireless substitution, and that Rogers and Videotron will continue to maintain their share lead against Bell on TV and residential broadband.”
Finally, “(w)ireline substitution will accelerate due to lower pricing impacting both incumbent losses and cableco gains. We forecast 50% of the incumbents’ residential telephone wireline loss in 2014 will come from wireless substitution, up from 10% in 2008. We forecast wireless-only households will reach 20% of Canadian households by year-end 2015, up from 7.6% at year-end 2008,” says the report.
