Consumers face an ever-greater range of wireless services.Blair Gable
Big Canadian wireless companies have been forced by new competition to slash the price of making a cellphone call, but the more crucial question is whether they will do the same thing with smart phone data prices.
Charging clients for the bandwidth chewed up by smart phone users -whether from browsing the Internet or streaming mobile video - is the true growth area for the sector. But new entrants introducing radically lower data prices are forcing big carriers into the classic conundrum of whether they should match prices and watch margins wither, or gradually cede vast shares of the market to brash new competitors.
By the end of 2010, which saw competitors like Public Mobile and Quebecor Inc.'s Vidéotron Ltée launch wireless networks, the average revenue per subscriber for voice services will have fallen by 7 per cent, according to research by Convergence Consulting Group Ltd. released to The Globe and Mail. At the same time, the average monthly revenue for each wireless data customer will have soared by 26 per cent, Convergence says.
New entrants, such as Wind Mobile and Mobilicity, however, are not only undercutting on wireless voice prices: They are entering the market with smart phone data offerings as much as 75 per cent cheaper than those of incumbent providers such as BCE Inc. and Rogers Communications Inc.
Although established providers have reacted to the assault on wireless voice prices - for example, Rogers' launched a new discount brand Chatr Wireless Inc. with drastically cheaper prices - the big Canadian providers, like those in the United States, have resisted pressure to match new discount competitors' data prices.
But as the number of smart phone users in Canada continues to explode - Convergence estimates that at the end 2010 roughly 31 per cent of wireless users here will be smart phone users, a number set to roughly double to 60 per cent by the end of 2014 - the country's largest providers will be faced with a tough balancing act: Either see world-leading profit margins come down or cede a chunk of an emerging segment to new wireless companies, which includes the telcos' entrenched cable rivals Vidéotron, EastLink Communications Inc. and Shaw Communications Inc.
"Adjusting on voice [prices]is not going to be enough to stop the new entrants," says Brahm Eiley, a principal with Convergence. "Voice is in decline. This market, though, is really about data. And the incumbents and their discount brands have not adjusted their data pricing."
Canadian telecom executives, however, have been steadfast in refusing to match the fixed-rate, "unlimited" data plans of the new entrants, and have sworn publicly that they will never do so. The giant U.S. telco AT&T Inc. also recently phased out its "unlimited" data plans because of network congestion issues caused by Apple Inc.'s popular iPhone.
Mr. Eiley notes that though Vidéotron's launch was not too aggressive on voice, it undercut incumbents on data by a wide margin. But Shaw - when it launches its wireless network some time in 2011 - has incentive to be even more aggressive on data pricing, since both Wind Mobile and Mobilicity, new entrants with cheap data plans, will be operating in Calgary-based Shaw's Western Canadian territory. In Quebec, the only new entrant in addition to Vidéotron is Public Mobile, which does not offer smart phones with data plans.
Editor's Note: An earlier online version of this story and the original newspaper version of this story incorrectly stated that the average revenue per subscriber for voice services will have fallen by 9 per cent instead of 7 per cent. This online version has been corrected.