By Adriano Marchese
Canada's telecom companies are locked in a wireless price war, threatening one of their most-profitable segments as they seek to hold onto their customers.
The main reason behind the fight is the emergence of Quebecor as a viable national competitor to battle incumbents Rogers Communications, BCE's Bell Canada and Telus across Canada.
The shakeup has been good for customers, with consumer prices for cellular service down by more than a quarter over the last year. But analysts have raised concerns that the downward pressure on prices will weigh on earnings for the telecom companies for several quarters and drag on what the companies had banked on as an area for growth.
"More competition is good for the consumers, but not as good for shareholders," Desjardins telecom analyst Jerome Dubreuil said.
The entry of Quebecor, which has historically operated in Quebec, as a national player was prompted by concerns from regulators that Rogers' 20 billion-Canadian-dollar ($14.59 billion) acquisition of Shaw Communications would harm competition. Quebecor paid C$2.85 billion to buy Freedom Mobile from Shaw, with commitments to, among other things, offer prices 20% below incumbent carriers in certain markets. Both deals closed in April 2023.
While Quebecor went about growing its market share, others defended their turf, contributing to the drop in prices. According to Statistics Canada, consumer prices for cellular services decreased by 26.6% in April 2024 from a year earlier, and are down nearly 50% since 2019.
Quebecor currently services about 3.8 million of the 34.5 million wireless subscribers on Canada's main telecom networks, according to the companies' recent quarterly reports. The other three have roughly 10 million subscribers each. Quebecor Chief Executive Karl Péladeau wants to surpass the four million customer mark by offering innovative products and strong economic incentives.
Rob Malcolmson, Bell Canada's chief legal officer, said Bell also has lowered its prices in response to the new competitive landscape, leaning on the quality of its network as a selling point for potential new customers.
"It is certainly true that intense competition is driving down prices, which benefits Canadian consumers," Malcolmson said. "Prices for wireless services in Canada continue to decline as inflation drives prices up for almost everything else."
Maher Yaghi, a telecom analyst at Scotiabank, said the wireless sector has become one of the few areas of growth for Canada's telecom companies, making it a critical pillar to their earnings. Traditional segments such as voice plans, television and enterprise services have been down in recent years.
Yaghi said he continues to monitor wireless prices, including whether the carriers will opt for further discounts during key shopping periods such as the back-to-school season or around Black Friday.
"It's very eye-popping when you look at the pace of decline in the price of a bucket of 20 gigs and 50 gigs in Canada," Yaghi said.
Dubreuil said investors should temper their growth expectations for the sector. He projects wireless unit growth, which was between 6% and 8% annually just two years ago, to be closer to 3.5% to 4% due to increased competition and the presence of a viable fourth player.
Investors, too, appear to be leery. Shares of major telecom companies have been under pressure over the past 12 months, with their stocks hovering around their 52-week lows.
The impact of these price reductions may not be evident in earnings for several quarters as legacy plans are gradually replaced with new, lower-priced ones. "The impact on financial results will take an additional three to four quarters before they run through the system," Yaghi said.
Write to Adriano Marchese at adriano.marchese@wsj.com
(END) Dow Jones Newswires
June 21, 2024 12:18 ET (16:18 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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