Canada's biggest wireless carriers are in the midst of raising prices on some of their most popular cellular plans as the industry looks to shore up revenue growth.
BCE Inc. first announced a $5 monthly increase for new subscribers to certain share plans on its website last week and financial analysts and wireless technology website Mobile Syrup have tracked similar price hikes or planned increases by Rogers Communications Inc. and Telus Corp.
BCE attributes the pricing adjustments to the impact of the weak Canadian dollar and the continued need to invest in its networks, pointing out it has recently received several awards for network performance. "Most equipment and smartphone suppliers are international companies and while having the best networks has been the key to Bell Mobility's marketplace performance, we have also faced a significant increase in costs due to the weakened dollar," spokesman Mark Langton said Monday.
Telus also points to the low Canadian dollar and "the annual multibillion-dollar investments required to keep up with the growing demand for wireless data," and spokeswoman Emily Hamer noted that the price changes only apply to new contracts and renewals and won't affect existing customers.
Rogers spokesman Aaron Lazarus similarly said the adjustments reflect "ongoing network and service investments along with current market conditions impacting our industry."
Yet, analysts also see the price changes as a bid to make up for flagging growth in average revenue per user (ARPU), a metric the industry tracks closely.
When the national wireless code came into effect in December, 2013, it effectively eliminated new three-year contracts. As the carriers moved to two-year plans, they increased the rates charged on a monthly basis, arguing they had less time to recoup the cost of the upfront subsidies they offer on new devices.
But the effect of those higher prices first implemented about two years ago is now wearing off and carriers are looking for growth elsewhere.
"We believe these price increases come at a time when industry ARPU growth is decelerating post the transition to two-year contracts (a potential headwind for the stocks)," RBC Dominion Securities analyst Drew McReynolds wrote in a report last week. "While visibility around ARPU growth in 2016 remains limited, these price increases lower the risk that industry ARPU growth turns negative."
Scotia Capital Inc.'s Jeff Fan similarly pointed to the move from three- to two-year contracts and added that growth due to another general industry shift – from prepaid options to more lucrative monthly contracts – is also starting to fade.
The analysts both forecast average ARPU growth across the Big Three will be about 1 per cent in 2016. That's down from their estimates of between 2.5- and 3-per-cent growth for 2015 (the companies report fourth-quarter results over the next three weeks).
In a four-page report on the price changes Monday, Mr. Fan also suggested that the Big Three carriers are taking a break from discounts after offering heavy handset subsidies in the fourth quarter of 2015 as they fought for subscribers in a particularly competitive period.
Mr. Fan highlighted the fact that prices are not increasing in Quebec, Manitoba or Saskatchewan, which are all provinces with four wireless players with competitive networks. Although Wind Mobile Corp. operates in Ontario, British Columbia and Alberta, its unreliable 3G network is likely not seen as a "perfect substitute" for taking market share from the Big Three, which all operate LTE networks.
He cautioned that while there is little the federal government and regulators can do to address such price increases in the short term, they could factor into future policy decisions to offer more support for fourth players, in particular Wind and Videotron Ltd. Such support could come through lower rates for wholesale roaming services or reserving cheaper cellular airwaves in spectrum auctions for fourth players.
Mr. Fan noted the companies are also cutting out or reducing "BYOD" (bring your own device) incentives, which have previously entitled customers who own their smartphone outright to monthly discounts of about $20 on their service plans. "We think that is a signal that the free-agent base may be getting too big … and the carriers want to incentivize them to sign contracts," he said.