Put the Ouija board back in the attic, kids. Globe Tech HQ has the low-down on the future of Canada's telecom industry
1. Fragmentation of the market
This one's tricky. Talk of nation-wide carriers - like Rogers, Bell, Telus and Wind (which doesn't operate in Quebec and hasn't launched out east yet) - misses a pretty fundamental truth: These companies have regional strengths.
Rogers is really strong in Toronto and Ontario. Telus is stronger out west, especially in Alberta. Montreal-based Bell is up front in Quebec. And so on. With cable companies - such as Calgary-based Shaw, Montreal-based Videotron and Halifax-based EastLink - launching wireless service over the next couple of years only in their respective markets, many expect the industry to fragment further.
Already, Rogers is hinting that it will only launch Chatr, its unlimited talk-and-text discount flanker brand, in certain urban markets where they face new competitors; this means Rogers customers outside of urban centres will have no access to new, lower pricing. And since Shaw and Videotron are likely to have very different pricing schemes (Videotron is expected to undercut Bell's wireless pricing by upwards of 40 per cent, which is what Videotron did when it launched home phone service), it only makes sense to respond in-region. Why would Bell adjust prices in British Columbia to compete with Videotron? It doesn't make sense.
So far, newcomers have focused on the Toronto market, which means consumers here have much more choice than those elsewhere. Combine that with a new consumer protection law in Quebec - which limits the amount of termination fees that carriers can charge consumers who break contracts and is likely to result in big carriers making handsets in la belle province more expensive - and you've got yourself one finely fragmented market.
2. Wireless substitution
Traditional providers like Bell, Telus and Rogers have yet to slash wireless prices and introduce unlimited plans across the board for one very good reason: If they did, all of their home phone subscribers would cut the cord on their landline and go completely wireless. Think of all the revenue the Big Three would lose if all those people across the country, who still pay for home phone service, cut their service and went completely wireless with a new provider. So they haven't done it. It's that simple.
But things are changing. Market newcomers - like Mobilicity, Wind Mobile and Public Mobile - have no such qualms about pricing, since they have no landline customers. This is why their pricing is so low (they also have smaller, less reliable networks, so they have to differentiate on price) and why they're offering unlimited voice plans that mimic the talk-'til-you-drop attitude of the landline.
Due in large part to this assault on price norms, wireless substitution - when people cut the cord to go wireless - is bound to increase. In the United States, the current number of wireless-only households is about 23 per cent. In Canada, it's about 10 per cent. And the U.S. number shot up gradually after a couple of new entrants (MetroPCS and Leap Wireless) launched cheaper unlimited plans, which is where Canada's new entrants got the idea.
Get ready for some serious cord-cutting over the next year.
3. The decline of voice revenue
I used to hold off talking on my cellphone until after 6 p.m. It would annoy my friends. I wouldn't answer calls from my parents. I would text. I would watch the clock and wait. Anything but talk before my unlimited evenings started.
That's so yesterday. Now, I have a company phone and can rant until I'm hoarse.
But many others are now chatting until they're hoarse for another reason: with new providers, unlimited is all the time. And when it isn't, like with City Fido's 4000 minutes plan, it practically is. Talking rules!
Or does it? With people actually talking and wanting to talk, and carriers responding to new competition, the amount of revenue carriers garner from voice minutes has been dropping, and fast. Voice is quickly becoming commoditized and worthless, especially as data use begins to soar. Carriers can no longer say, "Here's a voice product. Now pay me a massive monthly bill for the privilege." It doesn't work that way any more.
For carriers with tons of wireless customers paying huge bills and watching a flood of new competitors offer $24 all-you-can-talk buffets, this is alarming. With Rogers launching Chatr, and with the rise of data services like texting and social media and e-mailing, the decline of revenue from voice services will only continue to intensify.
4. The data crunch
As I've written before, wireless data consumption is booming. Newer, more powerful smart phones are gobbling up vast amounts of data on mobile networks. Consumers are loving it, and growing accustomed to streaming YouTube videos for friends at bars, growing frustrated when you can't watch free, pirated TV in bed on your phone, etc.
Every few days, some new report will come through my inbox forecasting that data growth will triple in the next second or multiply by 1-million over the next 5 years. Or some doomsday consultant will predict Rogers will crumble under the weight of the iPhone, like AT&T has, or that no carrier will be able to cope with the increasing demand for data.
To be sure, it's a huge conundrum. Data brings in big revenues for carriers. Consumers love it. But it's also a challenge to network operators: They need to become more efficient with how they transport and handle data, and need to offload some of the strain onto their wired networks (like getting you to use your iPad at home, on WiFi, for example.) If they don't, the gains from data won't replace the losses from voice.
5. Mobile broadband
In a country the size of Canada, it's tough to expect that every household in the country will be hooked up to a wired network - which are almost always faster, more reliable, and have better quality than wireless networks. This has a variety of social, political and financial implications, which I wrote about with my colleague Jacquie McNish here.
The issue is complicated. But what's clear is that mobile broadband is taking off - for those in rural areas, for those who head north to cottages and want to stay connected, and for the increasingly mobile Canadian work force, who may be working out of cars or cafes across the country.
I was speaking to a wireless executive this week about how pricing, and mindsets, were preventing a widespread adoption of mobile broadband. But these concerns will likely fade away as a new generation of Canadians unaccustomed to wires and cables begin to tether their smart phones for connections or rely on Internet data sticks for their primary connections.
Rogers, Telus and Bell are all selling their mobile data sticks, and WiFi hubs, like hotcakes. And Wind and Mobilicity are trying to do the same. Eventually, it's likely that we'll see TV services being distributed via wireless channels on advanced Long Term Evolution (LTE) 4G networks.
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