TV subscriber losses steady, wireless adds at record high in 2016

Following a year in which cord-cutting increased sharply, the trend seems to have levelled out somewhat in 2016, with Canada’s publicly traded telecoms losing 220,990 TV subscribers, compared to the 178,910 who eliminated their service the previous year. That made for a two-per-cent decline compared to a 1.6-per-cent fall in 2015, when cord-cutting appeared to accelerate five-fold in comparison to the prior year, which had the first fall on record, according to quarterly report numbers compiled by The Wire Report. “It is not getting any worse as of right now,” analyst Greg MacDonald of Macquarie Securities said in a phone interview. “The question I would have is: could it get worse?” The answer to that question depends on the appeal of over-the-top (OTT) products, including their pricing and what kind of services move to the OTT model, he said. “I think the ones that could materially change the cord-cutting dynamic is sports,” MacDonald noted. “I think over time you’re going to see sports over-the-top, and you’re going to see a continued development of over-the-top services for scripted content.” It’s an “important time” for cord-cutting because OTT services are getting better every year, while “the breadth of product you’re getting in the market is getting bigger every year,” he noted. As the amount of scripted TV and films available through OTT services has grown, there has also been movement towards streaming sports in recent years, with Twitter Inc. picking up rights to a number of sports leagues, and Rogers Communications Inc. launching sports streaming services, including offering its Sportsnet channels without a TV subscription. It’s a trend that will unroll slowly because broadcasters tend to sign four- or five-year deals for sports, MacDonald noted. “You’re not going to see all of a sudden, in a two-year period, sports go en masse over-the-top,” he said. RBC Capital Markets analyst Drew McReynolds said in email that, overall, he expects cord-cutting to “continue unabated.” “As for the annual volatility, there are many factors that can come into play” that can affect cord-cutting in a given year, he said, such as promotions, new smaller packages, and the CRTC’s rules mandating the unbundling of TV services. Canaccord Genuity analyst Aravinda Galappatthige said in a phone interview the decline in Canada is similar to the trend the U.S. industry is seeing, and that the growth of OTT services “will keep that line moving in the same direction, but at a fairly slow pace. So you’re not going to see seven, eight-per-cent declines in … TV subs anytime soon.” The subscriber numbers from the companies’ fourth-quarter reports in fiscal 2016 showed cable companies continued shedding customers while IPTV offerings picked up new ones. Shaw Communications Inc. lost the most TV subscribers, with 131,875 leaving the company. Rogers Communications Inc.’s subscribers fell by 76,000, Quebecor Inc.’s Videotron by 46,000 and Cogeco Inc. was down 26,035. Manitoba Telecom Services Inc. was the only company with IPTV services to lose customers, reporting a loss of 1,493 customers in its third quarter (the compilation used its third-quarter results because MTS did not report in the fourth quarter due to its imminent acquisition by BCE Inc.) Bell and Telus Corp. added customers — 6,413 and 54,000, respectively — though those numbers were lower than in previous years. In 2015, Bell had 95,888 new customers and 153,360 in 2014, while Telus added 89,000 in 2015 and 101,000 the previous year. MacDonald noted that because the number of overall households increases each year, there are actually another 200,000 new potential customers each year, which means the real decline the companies are seeing is closer to 400,000. “The short answer is no, cord-cutting is not accelerating, but that doesn’t mean it’s not a risk,” he said. He added that companies are fighting that risk by lowering the pricing of their cable products. “My belief is that cable will trend down to the $50 range, and that broadband, as a product, the industry will try to price up,” MacDonald said. “They are losing pricing power on cable services and for now at least gaining pricing power on the broadband side of the business.” The cable industry is also making TV services “look and feel more like an online product,” through tools like the Comcast Corp. X1 platform, which has been adopted by both Shaw and Rogers. “The cable industry knows that its saviour is to … shift their product from an old, broadcast model of distributing various buckets of content to a new model of getting far more granular in the à la carte options you can take and adding the services that online has, such as cloud-based storage individualized search mechanisms,” MacDonald said. The loss in TV subscribers stood in contrast to the companies’ wireline Internet and wireless numbers. The seven publicly traded companies’ Internet service adds stayed consistent with increases over the past five years, with 342,773 new customers in 2016. Meanwhile, wireless showed the biggest increase in at least five years. Rogers, Quebecor, MTS, Bell and Telus reported 916,219 new customers in 2016, compared to 850,434 wireless adds the previous year and 748,294 the year before that. Such increases — given that most Canadians already have smartphones — raise the question of how sustainable that trend is. “That’s the biggest question the whole market has been asking over the past year,” MacDonald said. “The biggest improvement has been seen in the second half of 2016.” He added: “The most credible response to why that could be that I’ve heard is that there’s much more aggressive promotional activity on iPhones, which suggests that there’s a portion of the market that historically had not been able to afford iPhones that are now stepping up to more aggressive promotions.” Galappatthige said he doesn’t “think net adds are going to continuously grow from those levels. I mean, this year might be a high,” noting the trend came as a surprise to both analysts and the companies. He said that incumbents have been introducing incentives, like bigger subsidies, which has encouraged subscribers to upgrade, take a second phone or get a phone for their children at a younger age than they might have done previously. “So all those things are leading to an increase in the penetration of smartphones but also translating into higher wireless adds,” Galappatthige added. McReynolds noted that telecoms have given “a number of different explanations for this increase, including a higher penetration among younger demographics, the connection of multiple devices, immigration/population growth, migration from prepaid to postpaid.” He added that he wouldn’t “extrapolate the recent strength indefinitely,” but expects wireless activity will stay higher “versus the depressed levels during the double cohort period.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Charelle Evelyn at cevelyn@thewirereport.ca

TV subscriber losses steady, wireless adds at record high in 2016

News | March 16, 2017

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TV subscriber losses steady, wireless adds at record high in 2016

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