Wireless price hikes affecting other telecom spending: report

“Sharp” price hikes in wireless service over the past year are prompting people to reduce how much they spend on other telecommunications services, according to a Conference Board of Canada report released Thursday, though some analysts say they wouldn’t necessarily draw the same conclusion. The Conference Board said in a press release that the cost of telecom services, along with “changing consumption habits and a slower economy, will cause Canadian consumers to reassess their telecommunications spending in 2015." Following the introduction of the CRTC’s wireless code in 2013, which banned financial penalties for cancelling wireless contracts after two years, there has been a “sharp increase in prices charged by the industry,” it said. This is likely a key reason for a five per cent rise in board's telecommunications price index in 2014, it said. “Having to bear the sharp hike in the cost of monthly wireless plans, some consumers had no choice but to try to reduce their spending on other types of telecommunications services,” the Conference Board said. It predicted that price increases will “remain strong at 3.7 per cent this year due to the carryover effect of the significant increases seen in 2014,” but that those increases will moderate in 2016. “In fact, the big telecom carriers will likely realize that consumers do not have room in their household budgets to bear higher wireless prices without decreasing demand for other telecom services,” the board said. Canaccord Genuity analyst Aravinda Galappatthige said in a phone interview that customers could be scaling back on telecom services for reasons other than high wireless prices. Price increases in wireless last year were put in place by the incumbent carriers in response to the wireless code, he said, and that’s “not something you’re going see every year.” He added that it’s likely customers are also paying more voluntarily since they choose to sign up for plans with higher data caps. Customers are willing to pay more for wireless, Galappatthige said, if they’re receiving better service, such as higher data usage or better phones. However, he said they aren’t willing to pay more for TV service given the increased availability of over-the-top (OTT) video services. He also noted that people are increasingly getting rid of landline-phone service. “Think about the services they’re cutting back on," Galappatthige said. "It’s video and home phone. So I don’t know if they’re cutting back because wireless prices are up, or if they go, ‘We don’t need this.’ I think it’s more to do with, ‘We don’t need this as much.’ And particularly the younger demos — they don’t need to have a home phone; they don’t need to have cable,” he said. Greg MacDonald, telecommunications analyst with Macquarie Capital Markets, said that while there could be “some association” between customers dropping their other services and price increases in wireless, “I think it’s probably got a lot more to do with the competitive nature of what’s happening in the market, particularly the technology impact,” such as how OTT services are effecting traditional TV. “If you combine that with a competitive marketplace on cable, vis-à-vis IPTV rollouts … in those environments, you combine those two things, there is a decline in pricing power for television distribution service relative to previous years,” he said, adding that customers are calling their providers and getting their bundles re-priced. “That competitive element has at least as much of an impact on that as any potential impact from higher prices from wireless causing people to go and drop services in other areas.” He said he does agree with the Conference Board report that “the price increase may be affecting actual demand for new customers coming on.” MacDonald also said that more competitive prices are on the horizon. “Although the incumbents raised prices in wireless last year, the existence of Wind and particularly the spectrum position it has, in my opinion will inevitably quite quickly result in a much more competitive pricing environment in wireless,” he said. Wind will launch LTE services by late 2016, which will “make the Canadian market look a lot more like the U.S. market in wireless, in late 2016, certainly 2017,” he said. The U.S. market is more competitive when it comes to wireless, he said, adding that “you’ve already seen evidence of what the Canadian market could look like. Wind’s pricing for 3G service is considerably cheaper than the incumbents’ pricing for 4G service.” Gerry Wall, president of Wall Communications Inc., which has produced annual reports on telecom pricing for the CRTC, said in an email that the Conference Board's prediction that a cooling economy will affect consumer spending, including on telecom services, is "not unreasonable," but said he doesn’t necessarily agree that higher prices for wireless services will result in reduced spending on other telecom services. "It may be that higher household expenditures on wireless data will be offset with reductions in consumption of non-telecom services and goods," Wall said. "What I mean is that the use of mobile wireless data may cause substitution away from consumer activities such as travel, going to movies, home security, concerts, etc. "I don’t think we have enough research on these substitution possibilities to make a definitive statement." Industry Canada says on its website that wireless prices have declined 22 per cent between 2008 and 2014, citing data from Wall Communications. Wall said while this categorization is accurate, "prices, which fell in 2009 2010, have been on a upward trend for the last couple of years. As such, prices in 2015 are now getting closer to price levels in 2008, so we are catching up." The Conference Board report forecast that telecom industry revenues will rise by 2.3 per cent this year, which would make for the smallest increase since the 2009 recession. At the same time, it predicted the economic output of the telecom industry will expand less than one per cent this year. “That said, the telecommunications industry has managed to maintain a very stable pre-tax profit margin, averaging 13 per cent since 2007,” the release said. “With little threat to the incumbent's dominance in the wireless segment — by far the most profitable one — the industry will be able to sustain its high profit margin throughout the forecast period.” It also said that weak business investment would affect industry sales, as companies may choose to postpone spending on telecom services and equipment until the economic outlook improves. At the same time, the public sector is unlikely to provide much of a boost, it added. The report said TV services are especially vulnerable. It said that in a situation where customers are looking to cut back on other telecom services to afford wireless access, “the decision to cut the cord can become an easy one for households, especially when video-on-demand options like Netflix and Shomi …. are available to everyone with an Internet connection.” It noted that the new $25 basic service to mandated by the CRTC next year “may be exactly what many Canadian families are looking for, so that they can spend the resulting savings on webstreaming services instead.” It added that “increasing the variety of paid content available to all Internet users rather than TV subscribers alone is likely to help mitigate the impact of declining revenues from TV subscribers. In addition, it may also help telecom carriers compete with the growing range of premium content now available directly from television networks.” Shomi, a joint venture by Rogers Communications Inc. and Shaw Communications Inc., announced recently that it will become available to all Canadians online, without the need for a TV subscriptions. BCE Inc.’s streaming service, CraveTV, is only available to customers of certain TV services. In an emailed statement, Bell spokeswoman Jacqueline Michelis said that in its most recent quarterly results, its wireless division “saw significant increases both in new customers and in revenue due to ongoing growth in mobile data usage.” She added: “Our focus is on network and service leadership, and customers are responding.” Rogers spokesman Kevin Spafford said in an email that the company’s “plans are designed to meet the changing needs of our customers and their families, who are using more data to surf and stream than ever, and to help them get the best value.” He said the company’s wireless share plans “include unlimited calls and texts and larger data buckets,” and Rogers’ newest Internet plans feature “unlimited usage and guaranteed pricing for three years with a TV and Internet bundle.” He referred to data from the Wall Report, and said its numbers show that wireless and Internet prices have dropped from 2008, and that the most recent edition showed that “the price for plans with larger data buckets decreased by 11 per cent over the last year.” Telus Corp. did not respond to a request for comment. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and reporting and editing by Derek Abma at dabma@thewirereport.ca

Wireless price hikes affecting other telecom spending: report

News | 07/09/2015 8:55 pm EDT

To keep reading, get a free trial.

Already a Subscriber?

Related Stories

Corus wants in on local news fund post Rogers-Shaw

News | 05/26/2023 3:58 pm EDT

Streamers should be obliged to sell cable integration apps to small BDUs: CCSA

News | 10/27/2022 11:35 am EDT

PIAC attacks CRTC procedure on skinny TV price hike application

Briefs | 10/13/2022 2:38 pm EDT

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us