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An Apple IPhone 4s and Samsung Galaxy S are seen in this illustration photo. (PAWEL KOPCZYNSKI/REUTERS)
An Apple IPhone 4s and Samsung Galaxy S are seen in this illustration photo. (PAWEL KOPCZYNSKI/REUTERS)

Telecommunications

Wireless price rise predicted Add to ...

After years of falling prices, monthly wireless bills are on track to register their first increase in 2014 as more and more Canadians flock to data-hungry smartphones.

As a result, the low point in wireless pricing is nigh, according to a new report by Convergence Consulting Group. The study, entitled Canadian Wireless: Assessing The Impact of New Entrants, predicts consumers’ growing addiction to smartphones will prompt increasing numbers to sign up for more costly data packages over the coming years.

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That burgeoning base of smartphone users is expected to fuel a surge of data revenue growth through increasing use of mobile video and other applications. Some 55 per cent of Canadian wireless subscribers are expected to use smartphones by the end of 2012, roughly double the number from two years ago, the report said. That upward swing will continue next year, with 65 per cent of mobile users using the trendy devices by the close of 2013.

“Those jumps are massive given that, on average, customers with data [plans] pay almost twice what just voice customers pay,” Convergence president Brahm Eiley said in an interview.

The industry’s average revenue per user (ARPU), which reflects the amount of consumers’ monthly bills, has declined since 2009 due to a burst of competition from wireless new entrants including Wind Mobile, Mobilicity and Public Mobile.

Convergence predicts that after recording ARPU declines of 3 per cent in 2009, 2 per cent in 2010, and 1 per cent last year, that key industry metric will be largely flat both this year and next before recording growth of 0.3 per cent for 2014. While that amount may seem insubstantial, it would mark the first increase in Canadian wireless ARPU since 2008.

Meanwhile, wireless competition appears to be reaching a crossroads in Canada ahead of the federal government’s auction of wireless spectrum next year, Mr. Eiley said. The report notes that there are already signs that wireless pricing may have hit a “bottom” in 2012 after both new entrants and wireless incumbents’ flanker brands pushed through price increases earlier this year.

For example, Wind and Public Mobile boosted the prices of its cheapest plans. Among the big three wireless carriers, BCE Inc. stopped accepting new subscribers for its Solo discount brand and Telus Corp. raised the price of certain Koodo offers while also mothballing its Clearnet brand in Western Canada. Rogers Communications Inc. also tweaked some prices for Chatr.

Even with those price hikes, Convergence notes that new entrants still “undercut” the Big Three and their flanker brands by “more than 50 per cent on combined voice/data pricing and by more than 80 per cent on data alone.” Although the report predicts that new entrants will continue to gain market share going forward (their collective share is expected to rise from 6.3 per cent of wireless customers at the end of 2012 to 10.3 per cent at the close of 2014), it stresses their current pricing levels are not sustainable over the long term.

“Independent new entrants face a double-edge sword as on the one hand they must continue to price aggressively in order to gain subscribers, and on the other hand low prices make profitability challenging,” the report says.

Consequently, Mr. Eiley argues potential consolidation of new entrants, such as Wind and Mobilicity, could give a combined entity more pricing power down the road. He also posits that higher pricing in 2014, could be a key catalyst for Shaw Communications Inc. to revive its plans to launch a wireless network.

 

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