Canada's Telecommunication industry to see limited growth in 2016

OTTAWA, Feb. 3, 2016 /CNW/ - High levels of debt, combined with constrained job prospects, are making it harder for Canadians to spend more on their telecom packages and limiting industry growth, according to The Conference Board of Canada's Telecommunications industry outlook

"Canadian consumption will grow only modestly in 2016. This, combined with sharp telecom price increases seen in the past couple of years, will likely prompt Canadians to review their telecom services and eliminate unnecessary options along the way," said Kristelle Audet, Senior Economist, Canadian Industrial Outlook.

Highlights

• Growth in the telecommunications industry will continue to lag growth in the overall Canadian economy, with output expected to rise by only 1.4 per cent in 2016.
• Constrained job prospects and high levels of indebtedness are making it difficult for Canadians to increase their spending on telecommunications services. And with increases in wireless prices surpassing inflation, consumers may choose to limit their services and options to keep their telecom spending under control.   
• The picture is slightly brighter in the business segment, with rising demand for telecom services expected among companies in the manufacturing and transportation sectors.

The pace of growth in Canada's Telecommunications industry has slowed remarkably in recent years, from an increase of more than 4 per cent in 2010 to a mere 0.4 per cent in 2015. The industry has been negatively impacted by the decline in landline phone usage across Canada. Revenues from landline services have fallen almost 40 per cent in the past 10 years. Also undergoing significant disruption is the paid-TV segment as more Canadians view their content online. Moreover, with the equivalent of 95 per cent of Canadians already using a mobile phone, it is becoming more difficult for wireless carriers to grow their customer base.

Luckily for the industry, new technologies continue to fuel demand for wireless and wireline data. To support their growing consumption of online content, Canadians will continue to need fast and reliable Internet connections with greater download capabilities. On the wireless data side, some carriers are trying to leverage the increasing popularity of audio streaming to encourage their users to upgrade their monthly plan. However, consumers may have reached the point where every extra dollar spent on wireless may be diverted from other types of telecommunications services such as paid-TV and wireline phone service.

The outlook is slightly brighter for the business segment, as demand for telecommunications services among firms in the manufacturing and transportation sectors is forecast to grow at a healthy pace. In particular, the transportation sector is expected to spend more on Internet-of-Things (IoT) solutions, as connected devices are increasingly used in the industry for fleet tracking. With gains in the business segments partly offsetting weaknesses on the consumer front, output growth in the telecommunications industry is forecast to pick up pace, with an expected increase of 1.4 per cent this year.

Despite the challenges, the industry's financials remain exceptionally strong. Pre-tax profits are estimated to have dipped slightly in 2015 but expected to regain ground in 2016, rising to $7.9 billion. And profit margins are forecast to remain above 10 per cent over the next five year—well above the average for all sectors. 

SOURCE Conference Board of Canada

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