2008 Canada - Telecoms, Wireless and Broadband

BuddeComm’s Annual Publication, ‘2008 Telecoms, Wireless and Broadband in Canada’, profiles the fixed-line, wireless (mobile) and broadband markets in Canada. The publication also examines the convergence of these technologies with each other and with digital media such as digital TV and the emergence of new telecommunication services such as VoIP.

Although Canada’s telecommunications sector has been among the most advanced in the world, between 2000 and 2007 Canada’s performance in areas such as broadband penetration and wireless penetration started to lag behind its OECD counterparts. In addition, total telecom service revenues grew by a modest 5% during 2006, with final figures for 2007 expected to be little different. During 2007 the traditional fixed line sector continued to shrink as subscribers increasingly switched to wireless and VoIP services. These trends have led to calls for a lighter-handed regulatory framework. Accordingly, several regulatory reforms were legislated during 2007 which resulted in the CRTC issuing regulatory forbearance decisions in relation to numerous local residential fixed-line markets across Canada.

Despite slowing wireless subscriber growth, wireless revenues are being underpinned by strong wireless data revenue growth. The wireless market is expected to receive additional competition in 2008, given the pro-competitive rules proposed for the upcoming Advanced Wireless Services (AWS) auction. In terms of triple play developments, cable companies continue to enjoy robust growth in VoIP in contrast to the relatively tentative moves of the telcos into the broadcasting (IPTV) sector. Finally, further deregulation in telecommunication, broadcasting and new media markets is expected during 2008 and 2009, including possible loosening of Canada’s foreign investment restrictions.

Key highlights:

·         For 2006, overall telecom service revenues grew 4.5% to $36 billion. The majority of the growth was accounted for by the wireless (15% growth) and broadband (18% growth) sectors. In contrast, long distance revenues fell by 7%. It is estimated that for 2007, wireless and broadband together accounted for over 50% of total telecom industry revenues.

·         Competitors accounted for over 14% of residential local lines by the end of 2006, up from 8% in 2005, and for 16% of business lines. Cable companies in particular made significant inroads into local telephony markets, securing approximately 12% of total residential lines.

·         Despite strong growth in wireless revenues, the growth in wireless subscribers continued its downward trend into single figures (9%) for the year to 30 September 2007. Compared to other OECD countries, wireless penetration is a modest 60%, leaving significant room for growth. However, the main revenue drivers are expected to come from data services such as SMS and MMS. For more information, see chapter 8, page 88.

·         By mid-2007 more than 85% of Canadian households with Internet access used broadband connections. However, in terms of overall broadband penetration, Canada’s position in the OECD has slipped from second place in 2002 to ninth place in 2006. For more information, see chapter 6, page 50.

·         In late 2007, six months after BCE first announced the sale of its satellite subsidiary Telesat Canada to a joint venture company formed between US-based Loral Space & Communications and Canada's Public Sector Pension Investment Board, Industry Canada approved the acquisition.

·         On 30 June 2007 BCE reached agreement to be acquired by Teachers Private Capital, in an all-cash transaction valued at around $50 billion. Teachers Private Capital is the private investment entity of a group comprising the Ontario Teachers Pension Plan and the US-based private equity investment firms Providence Equity Partners Inc and Madison Dearborn Partners. The transaction is expected to be completed by mid-2008.

·         The CRTC proposed rules for the upcoming 2008 AWS auction which are designed to, and expected to, facilitate new entry. For instance, it has been proposed to set aside some spectrum for new entrants only. Ironically, the pro-competitive rules has reignited speculation of a Bell-TELUS merger. For more information, see chapter 8.3.3.6, page 93.

·         VoIP continued to grow rapidly during 2006 and 2007. The combined cable digital telephony subscribers of Vidéotron Ltée, Rogers, Shaw Cablesystems and Cogeco increased from around 200,000 at the end of 2005 to around one million by the end of 2006, and to over 1.6 million by September 2007.

·         Growth in digital TV services has been slower than initially predicted. Subscriber numbers increased by only 10% per annum in both 2006 and in the nine months to 30 September 2007. Nevertheless, VoD is expected to become an increasingly important source of revenue for many of the major cable operators. By late 2007 around 45% of digital cable subscribers were using VoD, up from around 10% in 2002. For more information, see chapter 7.2, page 73.

Forecast wireless subscribers, penetration and revenue growth – 2008 - 2013

(Source: BuddeComm estimates)