In a report published ahead of Bank of Montreal’s annual media and telecom conference on Tuesday, analyst Tim Casey pointed out the intensity of competition is picking up at the same time the telecom industry’s revenue growth drops by a third to 2 per cent annually, after averaging 3-per-cent annual increases for the past two decades.Fred Lum/The Globe and Mail
Four years ago, Rogers Communications Inc. RCI-B-T made a hostile bid for Cogeco Inc. CGO-T using a carrot-and-stick approach: Accept our rich offer or face a street-by-street battle for cable customers in your core Quebec and Ontario markets.
Cogeco turned down the carrot, spurning an $11.1-billion takeover. Rogers is now following through on its promise to target its Montreal-based rival’s clients, deploying technology the largest U.S. cellphone provider used to win market share from cable companies.
In response, Cogeco announced plans last month to launch its own cellphone service, back by Halifax-based Eastlink and a second national network that Cogeco refused to name and everyone in the chatty, tight-knit telecom community reckons is Vancouver-based Telus Corp T-T.
Canada’s supposedly clubby telecom industry, already rocked by Quebecor Inc.’s QBR-B-T acquisition of cellphone provider Freedom Mobile last year, is about to become even more competitive.
Cutthroat battles for cellphone and cable subscribers are welcome news for consumers and vindication for federal Industry Minister François-Philippe Champagne, who promised lower prices when he signed off on Rogers’ acquisition of Shaw Communications Inc. once the two companies agreed to sell Freedom Mobile.
However, for investors, the prospect of pitched battles for telecom customers adds even more uncertainty to the outlook for stock prices at Rogers, Cogeco, Quebecor, Telus and Bell parent BCE Inc. BCE-T, companies formerly known for their relative stability.
In a report published ahead of Bank of Montreal’s annual media and telecom conference on Tuesday, analyst Tim Casey pointed out the intensity of competition is picking up at the same time the telecom industry’s revenue growth drops by a third to 2 per cent annually, after averaging 3-per-cent annual increases for the past two decades.
Revenue growth will slow, according to Mr. Casey, because wireless and internet markets are now saturated and owing to the “disruptive impact of new technology and distribution platforms, which have eroded legacy services such as media, voice and video.”
The disruptive technology Rogers is using as the stick to pry loose Cogeco cable customers is known as fixed wireless access (FWA), which moves subscribers from a wired internet and cable connection to a high-speed, 5G radio network. FWA doesn’t offer the high-speed access needed for gaming, but it’s more than adequate for rural customers, who can’t get cable to their homes, and price-conscious subscribers such as students. Rogers FWA service costs $55 a month – it’s the cheapest way to access the internet.
Rogers and Cogeco run neighbouring cable networks in many Ontario cities, including Kingston, Oakville and Burlington. While Rogers can roll out FWA service across its national network, Mr. Casey said: “We expect Rogers will focus its FWA offer in Quebec and southwestern Ontario, targeting underserved areas within Cogeco and Quebecor footprints.”
In the U.S. market, wireless-only platform T-Mobile and other telecom companies used FWA to lure about 10 per cent of cable subscribers on to their networks. In Canada, FWA currently accounts for about 6 per cent of the market and the number of subscribers is growing at an 8-per-cent annual clip.
In August, Cogeco responded to the threat posed by FWA by announcing plans to launch cellphone service, piggybacking on Eastlink and what Mr. Casey and other analysts have said is Telus’s gear. Cogeco signed up for five years of access to the two networks. In a press release, chief executive officer Frédéric Perron said, “These commercial agreements will enable us to offer a broader range of bundled offers to better serve our customers, and do so in a capital-efficient manner.”
Cogeco is trying to expand its domestic subscriber base at the same time it attempts to build a U.S. cable business. Mr. Perron is fighting a war for clients on two fronts.
Cogeco will pitch its cellphones to a market of 4.2 million Ontario and Quebec residents. While the company hasn’t announced its pricing strategy, it is safe to assume Cogeco will initially undercut rivals. Mr. Casey said: “We view Cogeco’s rollout as a largely defensive strategy, primarily as a retention and churn management tool.”
Five deep-pocketed telecom rivals, all finally slugging it out for subscribers in major markets. It’s a win for consumers, an opportunity for the companies that roll out technology to win clients, and a nightmare for investors in the platforms that bleed customers.