Freedom plans could drive big three back to subsidies: analysts

The launch of new plans from Shaw Communications Inc.’s Freedom will drive more competition in the wireless market, analysts said after the new $0 phone plans were unveiled — warning the new offerings could lead incumbents to reconsider their new equipment financing plans. Scotiabank analyst Jeff Fan said in a note that the new plans from Freedom could limit the success of those financing plans and incumbents may have to “resort back to (or at least keep) the subsidy purchase option available for customers to remain competitive.” The new developments in Canada’s wireless market began last month, when Rogers Communications Inc. became the first national carrier to offer “unlimited” data plans starting at $75 for 10 GB, which throttle speeds once customers reach their data cap in lieu of overage fees. Telus Corp. and BCE Inc. then followed suit. The three companies also all began offering equipment financing plans, which provide phones at $0 down and separate payments for the device from payments for service. Analysts have pointed out equipment installment plans can help providers reduce or eliminate the amount they spend subsidizing phones. Desjardins analyst Maher Yaghi estimated in a research note Friday that the incumbents currently apply a $400 to $500 subsidy per device and will aim to eventually lower that to $100 or less. Fan noted that Bell has kept its traditional subsidized phone offer as an option, while Telus “still has some level of subsidies in their EIPs” and Rogers has gotten rid of all subsidies. He said that with the new plans, Freedom is subsidizing phones by between $260 to $380, below both the industry average before the EIPs and the current average subsidies. Freedom’s new free device offers, which include seven eligible phones for customers that sign up for plans costing at least between $50 and $75, show that the company is “willing to continue to subsidize devices while the incumbents are trying to move off subsidies.” Fan wasn’t surprised by Freedom taking a different tack, noting “they are the challenger with an improving network so we would be surprised if it followed the incumbents.” He said the incumbents’ move away from subsidies is “prudent and makes sense because they are trying to offset slower revenue growth by lowering subsidy cost. However, from a customer value proposition, we think the Freedom promotion will make the incumbents' EIP plans (with 10GB unlimited) look relatively more expensive could impact subscriber share and loading in the high-volume period.” Yaghi said that while he had expected Freedom to "adjust its device pricing in the wake of incumbents’ new financing features, we view this pricing as aggressive. As incumbents attempt to move away from subsidies, Freedom is now doubling down on this feature, which could eventually pressure incumbents’ device pricing." He noted that Telus had dropped the pricing of its unlimited plans in Quebec, Saskatchewan and Manitoba to $65 from $75. Yaghi said he was surprised by the move, since it signals that market competition is intense. Canaccord Genuity analyst Aravinda Galappatthige calculated that the new Freedom plans now offer a substantially larger discount over the incumbents' plans than previously, with the 18 GB plan being 46 per cent cheaper than the big three's 20 GB plans, compared to the previous 20 to 28 per cent discount. Galappatthige said Shaw's move to increase subsidies "puts the incumbents in a difficult position." He said the big three must either "choose to cede relatively higher subs to a significantly discounted Freedom offering or return to higher subsidies thus compromising the savings they expected to receive from switching to EIP." He said even though Freedom's promotion is likely temporary, it supports "concerns that the move to the new pricing models will drive increasing competitive intensity." — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Ahmad Hathout at ahatout@thewirereport.ca

Freedom plans could drive big three back to subsidies: analysts

News | July 26, 2019

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Freedom plans could drive big three back to subsidies: analysts

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