Softer holiday spending results in lower net subscribers in Q4

Canada’s three national wireless operators say that consumer spending on new wireless activations was slower in the fourth quarter compared to previous years, and this is one of the primary reasons net subscriber additions for the quarter were down. As the chart below illustrates, new net additions in the fourth quarter came in at their second-lowest level in the past seven years at approximately 607,000. Only 2002 had lower net additions, when the wireless carriers reported adding just less than 480,000 new subscribers. Traditionally the fourth quarter is a boon to the wireless carriers as cell phones are often given as holiday gifts. According to figures compiled by Report on Wireless for the fourth quarter, net additions were down by more than 100,000 compared to 2005 Q4 subscriber gains.George Cope, president and COO of Bell Canada, said during the company’s fourth-quarter and year-end financial results conference call that the entire industry seemed to have experienced a softer market in Q4. He highlighted the company’s struggles in the post-paid segment and noted this could be the result of a few things. "On reflection, possibly the lack of heavy family plan marketing in the industry drove pre-paid sales, and secondly pre-paid minute rate plans continue to move closer to post-paid rates in the marketplace," Cope said. Rogers Communications Inc. agreed with its rival that slower activity affected total net subscriber additions. Bill Linton, CFO of the communications and media conglomerate, suggested that lower than anticipated fourth-quarter net additions appear to come from a leveling of the activity between the third and fourth quarters. "There’s a bit less consumer activity during the holiday shopping season offset by growing activity during the back-to-school period," he said. Telus Corp.’s CFO Bob McFarlane also blamed the slowdown in Q4 for weakness in net subscriber additions. Noting that the company’s overall net additions were down, he said, "The subscriber results reflect reduced share of net adds for Telus association with lower gross opportunities due to the reduction in overall industry churn and a resulting reduction in deactivations available from other carriers as well as an overall slowing of industry penetration growth in the fourth quarter." Despite the apparent softness in the fourth quarter, Rogers outperformed its two rivals by a significant margin, posting net additions of more than 244,000 compared to 186,100 for Telus and 169,000 from Bell. Rogers added more post-paid customers than each of its competitors added total subscribers in Q4. Telus attributed its lower-than-anticipated quarterly net subscriber additions to a 40,000 decrease in the number of new pre-paid customers added in Q4 2006 compared to the same quarter in 2005. Bell, for its part, experienced a challenging quarter in terms of post-paid net additions, adding only 67,000 new customers. Other than the lack of family plan marketing, Cope said lower post-paid additions can also be attributed to a number of other factors, including a new credit policy, a weak handset lineup in some segments and struggles in distribution. "In the fourth quarter, we tightened our credit acquisition policy in October, resulting in approximately 20,000 post-paid subs added year-over-year," Cope explained noting that "the clients we were bringing in were not net present-value-positive." This caused the change in policy, he added. On the distribution front, Cope attributed some of the struggles to a slower-than-anticipated adjustment in sales strategy, noting the slow progress in moving from a price-based approach to one based on product benefits. The company will also be enhancing its distribution efforts by adding 100 more retail points of presence. "We will also be refreshing the look and feel of our own stores and looking to improve the relationships we have with third-party retailers," he said. After a couple of years of struggle where the company put plans to right the ship in place, the strategies appear to be paying off. In terms of subscriber mix, Bell has been able to shift the mix dramatically towards more post-paid subscriber additions compared to 2005 where post-paid represented only 56% of net additions. For the entire 2006 fiscal year, post-paid net additions represented more than 70% of total net adds.

Softer holiday spending results in lower net subscribers in Q4

News | February 26, 2007

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