[Reprinted from IDG sister publication ITBusiness.ca.]
When Rogers Communications makes the Apple iPhone available in Canada later this year, the telecom firm is likely to offer up a flat-rate unlimited data plan to customers, industry insiders say.
And such a move, they add, will fuel greater interest in wireless services — an area of telecommunications projected to grow rapidly in Canada over the next several years.
On the other hand, stiffer competition and increased labor costs is expected to temper revenue and profitability for the Canadian telecom sector as a whole.
AT&T was required by Apple to package the iPhone with an unlimited data plan when they released it in the U.S., notes Lawrence Surtees, vice-president at Toronto-based analyst firm IDC Canada. “That’s going to happen with Rogers.
And when Rogers does introduces that, Surtees predicts “it will shake things up in the wireless data market.”
Increased competition is likely to be one facet of this “shakeup.”
In fact, according to report released Wednesday by the Conference Board of Canada (CBOC), a new player in the Canadian wireless market is likely to emerge from the current wireless spectrum auction being hosted by the government.
Ottawa-based CBOC’s report lays out the organization’s forecast for Canada’s telecom industry over the next four years.
With 40 percent of the available spectrum reserved for companies that currently hold 10 percent of the market, a new player on the scene is inevitable, says study author Michael Burt, associate director of industrial outlook at CBOC.
Current carriers Rogers, Bell Canada Enterprises, and Telus Corp. will likely face competition from companies such as Shaw Communications, Videotron, or MTS Allstream.
“I expect to start to see increased competition sometime in the middle of next year,” Burt says. The new company will have to build its infrastructure and will appear in major cities at first — such as Toronto, Montreal and Vancouver.
Current carriers will also acquire new spectrum to satisfy customer demand for premium wireless services, the report adds.
“If they don’t acquire new spectrum they’ll reach capacity in the number of services they can provide,” Burt says. “It’s just like a manufacturing plant that produces cars, there’s a maximum amount they can output if they’re working full-shift, 24 hours a day.”
Canada’s wireless market is one of the least penetrated in the developed world, experts say, hampered by too-high costs for consumers.
But the telecom industry won’t cash in completely on the anticipated wireless boom as the number of wired lines continues to drop.
“For the industry as a whole, every time someone shuts off their landline to go to a wireless service, that’s not a net gain,” Burt says.
Between five and eight percent of Canadians have already dropped their landline phone to go completely wireless for local calls.
As a result of the trade-off, revenue growth in the telecom sector is forecast to remain at current levels.
IDC is predicting revenue growth of 2.9 percent this year and an average annual growth rate of 3.5 percent over the next five years, Surtees says.
Burt’s outlook predicts a growth of 3.1 percent this year and 3.3 percent annually from 2009 until 2012.
“It’s not burning the barn down, but it’s not totally stinko,” Surtees says. “It’s ahead of GDP growth.”
But the industry’s profitability will be far less than telecom firms have enjoyed in recent years. The report predicts annual profit increases of only 1.5 percent annually over the next five years.
The tepid forecast is due to the increased competition and a confluence of factors resulting in decreased margins for telecom companies, according to Burt.
“The industry has been benefiting from a strong dollar because the price of telecom equipment is very heavily influenced by the dollar,” the report’s author says.
“But now we expect the dollar to remain at parity and so there will be no relative decline in telecom prices.”
Also at play is a tight labor market that’s seeing higher wages for workers and fewer graduates coming out of Canadian universities.
Wages have steadily gone up, but telecom companies have also been pressing their staff for greater productivity, — to the point that today’s telecom worker is more than twice as productive compared to a decade ago, says the report.
“Companies are looking for cost savings and seeking more out of their workers to compete in the new environment,” Burt says.
Still, eventually it’s the consumer who will determine fate of the telecom sector, experts say.
Canadians will be spending more on wireless services, but their overall budgets set aside for communications services will drop steadily due to the shedding of wired services, the report predicts.
“Growth is being fueled entirely by wireless, it is increasingly the future of the franchise,” says IDC’s Surtees. “Over the next two decades we’re going to approach 90 percent wireless penetration.”
But Canadians won’t have to wait 20 years until they have affordable wireless data plans, Surtees says.
Any new entrant to the wireless scene will have to hit consumers with an all-you-can-eat data plan to woo them away from binding, multi-year contracts with existing carriers.
“They’ll finally say ‘here Canada do this and do it for a flat fee,’” he says. “The new entrant is going to have to lower their price and position it with an attractive device that will respond to the iPhone.”
ITBusiness.ca requested comment from Rogers, but did not receive a response by time of publication.