Quebecor has been adding subscribers through its Freedom and Fizz brands, but this has come at the expense of its average revenue per user, a key metric watched by analysts. (Photo by Noam Galai/Getty Images) ·Noam Galai via Getty Images
Intense price wars among Canada’s mobile phone providers are likely to intensify for Black Friday and continue afterwards, industry experts say, limiting the major telecom companies’ potential for wireless revenue growth.
The stiff competition is likely to be driven by Quebecor’s (QBR.B-TO) ongoing aggressive promotional efforts around its Freedom Mobile brand, and prolonged by an expected decline in Canada’s population growth that will reduce the stream of new subscribers to a relative trickle.
“It’s going to be one of the best Black Fridays the consumer is going to get in terms of pricing, because now Freedom has its own two feet to stand on, in a way,” said Samer Bishay, an industry veteran and president and CEO of Iristel and Ice Wireless. “Things are going to get a lot uglier before they get prettier. Consumers are going to benefit at the end of the day.”
Quebecor’s acquisition of Freedom Mobile, as a condition for the merger of Rogers Communications (RCI-B.TO) with Shaw Communications, gave Quebecor access to markets in Ontario and Western Canada. Since then, the company has been chasing subscribers with substantial discounts, as some analysts had predicted.
Quebecor has been adding subscribers through its Freedom and Fizz brands, but this has come at the expense of its average revenue per user (ARPU), a key metric watched by analysts. The company’s most recent quarterly earnings revealed a six per cent year-over-year drop in ARPU, versus more modest declines at Rogers, Telus and BCE (BCE.TO). But Quebecor, whose gains in market share have come at the other telecoms’ expense, has shown little sign of changing its tactics.
“Despite ARPU pressure stemming from low industry prices, QBR intends to stay the course with their current pricing strategy while improving their network and customer experience as they think this will continuously lead to market share gains,” wrote Scotiabank analyst Maher Yaghi in a note to investors. With Black Friday and the holiday season approaching, “there’s too much uncertainty around the level of promotional aggressiveness among incumbents to call a bottom here,” he wrote.
The federal government’s intention to severely limit population growth is likely to spur more competition in the short term and keep the pressure up in the years ahead, says Hanish Bhatia, a telecom industry analyst at Counterpoint Research. A drop in population growth would mean a more limited pool of new subscribers in 2025 and 2026, so the mobile providers “would want to onboard more and more people on two-year, more premium plans,” he said. “So that means the competition in this quarter, particularly, would be very intense” as providers vie for longer-term commitments.
“But I don’t think it’s going to stop there, because, again, the 2025-26 outlook is not looking very good because of the reduced immigration levels,” Bhatia said. “So I think the competition is still going to remain going into 2025-26.”
Recently, competition hasn’t been uniform across all categories of mobile phone plans. BCE, Rogers and Telus — which analysts refer to as the incumbents, or the Big Three — have engaged more on some price battles than in others. Both Telus CEO Darren Entwistle and BCE CEO Mirko Bibic noted during their third-quarter earnings calls that they were choosing not to match certain promotions.
“So they are saying ‘We are not going to discount the prices further to retain’” customers on those plans, Bhatia said, “‘because we already have very thin margins for those customers.’ … So the competition is actually for those high-value customers who buy those premium plans, and especially those who buy a premium plan on a two-year contract.”
(In an analysis of Quebecor’s Q3 earnings, Scotiabank’s Yaghi suggested that premium plans — not just adding subscribers — are also the end game for Quebecor’s bargain offerings. “The key in this land grab will be to eventually transition these customers to a higher pricing tier to pay for the upfront cost of acquisition.”)
Still, Iristel’s Bishay says, even when they don’t match an offer, the incumbents will likely employ other tactics to keep subscribers on board that won’t affect their ARPU. “What they’ll do is they’ll give you double data, or less throttled data, or maybe give you some roaming plan that you’ll never use, or whatever it might be, because that’s their only way to combat a Videotron or Freedom.”
Nonetheless, BCE’s acquisition of U.S. internet provider Ziply earlier this month is an indication that “the opportunity and the growth for large incumbents are no longer going to be in Canada,” Bishay adds.
With competition likely remaining fierce and immigration measures throttling a source of subscribers, Bhatia says growth in telecoms’ wireless businesses “is going to be hard to come by.” The biggest opportunity for growth domestically is in broadband, he adds, because “there are still a lot of suburban and rural areas in Canada where broadband is not very good.”
The telecom providers are buying up many regional broadband players, Bhatia says, a move that also gives the telecom companies means to offer their mobile subscribers bundled plans with one or more services like broadband or entertainment streaming services. Bundled plans tend to have higher subscriber retention rates and help boost another metric, average revenue per account.
The end result, Bhatia forecasts, is a situation where the telecom companies are largely “able to sustain their revenues” in spite of the ongoing competition, with “one per cent, two per cent, small single-digit number growth — and at the same time, you know, the prices for consumers are also coming down. So it’s a win-win, in a certain way.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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