The price of monthly wireless bills is coming down in Canada as a surge of new competitors offer rate plans that are challenging established telecom providers.
Andy Lehrer, who got rid of his old Fido cellphone plan with Rogers Communications Inc. for a cheaper plan with one of the wireless upstarts, is aware of that pricing pressure, which benefits consumers even as it worsens certain industry metrics for the fast-growing, multibillion-dollar sector.
Mr. Lehrer, who works with disabled students in Toronto, was paying nearly $150 each month on voice and data service for his BlackBerry. Despite having to buy a new phone and dealing with what he said is a significant drop in cellular network coverage and quality, he now pays only $44 for a wireless plan that offers more data and talk time.
"I still think it's worth it," said Mr. Lehrer, 42, adding that his phone frequently drops calls and has poorer reception. "I'll give it another year. If it doesn't improve in a year or so, I might switch to another company. It is a new service."
A new report by Convergence Consulting Group Ltd. shows just how much pressure new entrant wireless companies are putting on the margins and metrics, such as the average revenue per user, at Rogers, BCE Inc. and Telus Corp.
New entrant providers are offering combined voice and data plans that are 58 per cent cheaper than the incumbents, and their wholly-owned discount brands. For data plans, new entrant providers are charging as much as 83 per cent less.
"The new entrants haven't disappointed – they've come out with a big price undercut," said Brahm Eiley of Toronto-based Convergence.
That has contributed to a 1.4-per-cent drop in average revenue per user for the Big Three in 2011, Convergence said, powered by an 11-per-cent falloff in voice revenues and despite data revenue growth of 28 per cent per user. As plans and prices get more competitive, big wireless companies have been offering existing consumers better value-for-dollar – this is especially the case in Quebec.
TD Securities analyst Vince Valentini said in a recent research note that new entrant pricing has only gotten more aggressive with back-to-school deals in September, and that there is "no reason why the negative voice ARPU trends seen in Q2 would not carry over" into future quarters, leading him to be cautious on Bell, Telus and Rogers shares.
As a result, customers are also threatening to switch providers and end up negotiating better deals: Mr. Lehrer, for example, was offered a $10-per-month discount to stay with Fido, but declined since it was still cheaper to switch. Rogers, which has reported increased retention costs over the last couple of quarters, has felt this acutely since most of the new entrants launched first in Toronto, where the wireless giant is based.
"On the other side of the ledger," Mr. Eiley said, "the incumbents and their discount brands have swung back at the new entrants. There's been quite a bit of retaliation, and ongoing retaliation."
Rogers, in particular, launched a new "fighter brand" called Chatr Wireless to complement Fido and combat the new entrants with nearly identical price plans.
Convergence also noted that profit margins, as a percentage of service revenue, have been squeezed: At Bell, for example, the figure has dropped from 44.2 per cent in 2009 to 38.1 per cent in 2011.
At the same time, however, the new entrants have not claimed as much market share as many first expected. Mr. Eiley had to revise down earlier estimates of the new entrant's grab of market share to only four million wireless subscribers at the end of 2014, or 12 per cent, because of frequent launch delays, regulator difficulty, the scale of incumbent reaction and the decision by Calgary-based cable operator Shaw Communications Inc. to stay out of wireless for the time being. Currently, new entrants have only about 5 per cent of the market, according to Convergence.
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Average revenue per user at Canada's big telecom companies – declining voice revenues mitigated by increasing data revenues
VOICE
Telus
2008 - $52.89
2009 - $46.58
2010 - $43.25
2011 - $39.00
Rogers
2008 - $54.02
2009 - $49.74
2010 - $45.52
2011 - $39.18
Bell
2008 - $45.25
2009 - $42.47
2010 - $39.74
2011 - $37.22
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DATA
Telus
2008 - $9.84
2009 - $11.88
2010 - $14.39
2011 - $19.30
Rogers
2008 - $10.32
2009 - $13.85
2010 - $17.51
2011 - $21.62
Bell
2008 - $7.45
2009 - $9.23
2010 - $12.29
2011 - $15.78
SOURCE: Convergence Consulting Group Ltd.