OTTAWA, Dec.14, 2017 /CNW/ - Canada's telecommunication industry will face slower growth, as it grapples with an increasingly saturated market that is also characterized by consumers with less to spend on their telecom bundles. The industry will also have to deal with uncertainty created by the North American Free Trade Agreement (NAFTA) renegotiations, according to The Conference Board of Canada's Canadian Industrial Outlook – Telecommunications: Autumn 2017.
"Higher prices have been key in driving the industry's robust financial performance over the last three years. However, that trend is unlikely to last as cash-strapped consumers begin to delay upgrading their telecom packages," said Todd Crawford, Principal Economist, The Conference Board of Canada. "Meanwhile, even though the sector has very little direct impact on the trade balance, Canadian telecommunications finds itself as one of the industry's singled out for targeted action by the U.S. administration because of foreign-ownership restrictions."
- Canada's telecommunications industry will not be able to count on strong pricing increases going forward as cash-strapped consumers begin to delay upgrading their telecom packages. Industry prices are expected to increase by only 1.3 per cent a year between 2017 and 2022, compared with 2.1 per cent between 2012 and 2016.
- Industry pre-tax profits are projected to increase by 3.7 per cent to reach $9.1 billion in 2017 and recede slightly in 2018.
- Telecommunications finds itself as one of the industry's singled out for targeted action by the U.S. administration because of foreign-ownership restrictions. The outcome of these negotiations has the potential to completely reform the existing dynamics within the industry.
Despite an explosion over the past decade of online services, output in the telecommunications industry has actually contracted by 1.5 per cent since 2012. Industry revenues have performed better, but the gains have been due mostly to higher prices and changes to the mix of consumers' telecommunications bundles, which have led to improving margins. However, with Canadian consumer debt levels continuing to set record highs, household spending growth is forecast to slow going forward. Telecommunication firms will have to keep price increases manageable for their increasingly tapped-out consumers in order to maintain their existing customer base as much as possible.
Moreover, with more than 70 per cent of Canadians 18 and older already owning a smartphone in 2015, the pool of available new customers for telecommunications firms to attract to their networks is shrinking. Telecom firms will shift their focus toward growing their market share, which will further increase price competition. In all, these factors should lead to weaker price growth, averaging only 1.3 per cent annually over the next 5 years, compared with 2.1 per cent between 2012 and 2016.
The industry will also be challenged by the uncertainty created by the renegotiation of NAFTA, which has the potential to impact industry structure and market share. According to the Office of the U.S. Trade Representative, Canada's foreign ownership restrictions make it "one of the most restrictive regimes among developed countries." The agency further argues that as a result of these restrictions, the role of U.S. firms in the Canadian market has been limited to that of resellers that depend on domestic telecommunications firms for access to critical infrastructure and services.
Opening up the Canadian telecommunications sector through fewer foreign-ownership restrictions could potentially benefit consumers by ultimately resulting in lower retail prices. However, any regulations that force Canadian firms to provide access to their physical infrastructure at below-market rates will weaken their incentive to invest in new capacity and better technology. This would have long-term negative implications for the Canadian economy.
Although the risks are tilted toward the downside, the industry's recent financial performance suggests that it will remain healthier than most. Industry pre-tax profits are projected to increase by 3.7 per cent to reach $9.1 billion in 2017. While industry profitability will remain elevated, weak pricing and increased competition will drive the industry's pre-tax margins down from 13.3 per cent in 2017 to closer to 12 per cent in the next five years.
A copy of the report is provided for reporting purposes only. Please do not redistribute it or post it online in any form.
For those interested in broadcast-quality interviews for your station, network, or online site, The Conference Board of Canada has a studio capable of double-ender interviews (line fees apply), or we can send you pre-taped clips upon request.
If you would like to be removed from our distribution list, please e-mail [email protected].
SOURCE Conference Board of Canada
For further information: Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: 613-526-3090 ext. 221, E-mail: [email protected]; or Juline Ranger, Director of Communications, The Conference Board of Canada, Tel.: 613-526-3090 ext. 43, E-mail: [email protected]