Wireless is the fastest growing sector of the Canadian telecommunications market and is presenting opportunities for U.S companies to export technologies, products and services. U.S. companies will be able to take advantage of opportunities in wireless cellular services (particularly in wireless network development), innovative cellular hardware and software development, ultra wideband technology & devices, wireless fidelity (Wi-Fi) Access Points and technology and channel marketing partnerships.
The wireless market in Canada is comprised of telecommunications services provided by mobile wireless access facilities. These services include mobile telephony, mobile data such as text messaging, roaming, wireless Internet access and to a lesser extent, paging services. Satellite services associated with mobile telephones are also included in this segment. This report summarizes the Canadian wireless market by looking at its present and future dynamics and suggests opportunities for U.S. businesses and equipment providers. The wireless telecommunications industry is classified under the North American Industry Classification system (NAICS 517) – 5172 wireless (except satellite), 5174 satellite and 5179 other.
Technological improvements and increased availability of alternative methods of receiving phone service has resulted in large shifts in how Canadian households communicate by phone. Statistics Canada’s Residential Telephone Service Survey, in December 2006 reported that an estimated 3.8 million households, or almost thirty percent of total households, used exclusively traditional land-line services. A second survey, completed in December 2007 showed this number had declined to 3.1 million households or twenty-four percent of the total households. The December 2007 survey also showed that seventeen percent of households are likely to replace an existing traditional telephone service with a wireless telephone service in 2008. For wireless firms, a key consideration related to telecommunication services is the growth of mobile phone and wireless device users. In this regard, Canada’s wireless market is growing rapidly.
Wireless subscribers and Penetration
Canada has not yet reached its peak usage level of wireless services. The Canadian wireless market is steadily growing and creating opportunities in the area of communication. At the end of March 2008, Canadian wireless phone subscribers numbered 20.1 million, an increase of eight percent over the previous year. This increase also raised the national wireless penetration rate to over sixty-two percent. A recent study by Datamonitor forecasts that by 2012, the Canadian wireless telecommunications services market will have a volume of 30.6 million subscribers, an increase of almost forty-four percent since 2007.
Recent research by the Canadian Wireless Telecommunications Association (CWTA) estimates that wireless penetration in major urban centers has exceeded seventy percent, with some greater metropolitan areas approaching the eighty percent mark. Another study by research house, IDC Canada, estimates cellular penetration to reach more than seventy-six percent of the entire Canadian population within the next five years. Penetration across the country varies with Albertans at the forefront of wireless phone adoption with a household penetration rate of seventy-nine percent while Quebecers represent the other end of the wireless penetration spectrum at only fifty-one percent. Canada’s overall mobile wireless penetration rate is behind many of the member countries in the Organization for Economic Co-operations and Development (OECD). On the other hand, the penetration rate for wireline services, by household, was 92.5 percent. This is due to Canada’s competitive prices for local wireline services and a mature and reliable wireline network. In fact, wireline access penetration in Canada has consistently ranked near the top among OECD countries, despite Canada’s geographic enormity and vast rural and remote areas relative to most other OECD countries. These are some of the reasons why mobile penetration remains lower in Canada than in other OECD countries.
Wireless Coverage and Services
Considering Canada’s vast size, wireless coverage is extensive, with Canadian wireless carriers now offering coverage to more than 98 percent of the population over a geographic area of approximately 501,933 square miles.
With regards to services, Canadian carriers are slightly behind in the rollout of 3G capabilities, considering Canada’s total land area, in comparison with the United States. Due to the smaller size of Canadian operators relative to global operators, Canadian operators have taken a “smart follower” approach when it comes to the commercial deployment of new technologies and services. While a smart follower approach makes good business sense for an operator, a consistent lag in the commercial deployment of new technologies and, more importantly, slow monetization of the technology investment, impacts the entire value chain.
With new products like the iPhone and the Blackberry Bold, smart phone customers want to duplicate the Internet experience they are used to on their desktop computers. This creates great opportunity for a phone company, but also adds tremendous pressure on its networks. Industry experts say that there certainly has been a great enhancement from 2G to 3G, but telecoms are beginning to experience clogged networks and have to continually balance the capacity of their networks. Canadian telecommunications service providers will soon have to either have to begin limiting how much data a 3G phone customer can use or add network capacity by expanding infrastructure.
Following the launch of Canadian inter-carrier text messaging capability in April of 2002 and, more recently, the announcement of North American inter-carrier text messaging interoperability, Canada’s mobile phone operators have come together with the Canadian Wireless Telecommunications Association (CWTA) to offer common (universal) short codes which will be activated across all of the operators’ networks. By provisioning common short codes, the Canadian wireless industry hopes to offer all mobile phone customers new and ubiquitous text messaging experiences. The industry anticipates these new experiences will further the growth of text messaging. Preliminary numbers for the first nine months of 2007 total almost 7 billion text messages sent, compared to 4.3 billion in all of 2006. On an average day in 2007, Canadians sent approximately 31.5 million text messages per day. According to the CWTA, in 2008 this number increased to 54.1 million text messages per day.
Fixed wireless services are now emerging as a competitive alternative to traditional wireline offerings. Broadband wireless services, that compete with high speed wired interconnects, operate in a number of bands of frequency. Wi-Fi services are now commonplace in hotels, malls and office buildings.
Usage and Pricing
The average Canadian subscriber uses approximately 400 voice minutes per month. This represents the 2nd highest monthly usage in the world and is growing rapidly. Usage may be increasing because Canadian wireless prices have been falling steadily and consumers are now enjoying prices that are below or close to the average wireless prices across the 30-member countries of the OECD. According to OECD’s recently published "Biennial Communications Outlook 2007," Canadian prices rank 10th lowest for “low” users, 7th lowest for “medium” users, and 13th lowest for “high” users.
Still, wireless rates are generally higher than wireline prices in Canada, with the exception of low call volume users. Canadian low-usage wireless service rates are below those in the United States, but tend to be higher than those in other countries surveyed. At a high usage level, Canadian wireless rates are comparable to the United States and France, but significantly higher than in the United Kingdom and Australia. According to a recent study by Merrill Lynch, the average revenue per unit (ARPU) in Canada is $48 vs. $56 in the United States.
As a result of diminishing revenue growth, Canadian wireless service providers have recently made attempts to increase their revenues. In addition to switching to per-minute billing from the prior standard of per-second billing, the leading wireless providers (Bell Mobility, TELUS Mobility, Rogers Wireless) delayed their evening start times from 6 p.m. to 8 p.m. in an effort to boost revenue per subscriber. In the summer of 2008, both Bell Mobility and TELUS Mobility announced charges for incoming text messages. They both stopped providing free incoming text messaging and implemented a $0.15 charge per incoming text message, however, many plans include free incoming text messages as part of their monthly package. The Canadian government has since announced that they plan to ban charging for unsolicited incoming messages.
Trend to Quintuple Play Services
Communications companies are crossing what have been traditional boundaries between broadcasting and telecommunications. More and more companies are providing customers with "triple play" services, high-speed Internet, television, and fixed line telephone services (either circuit or VoIP) over a single broadband connection. In fact, the growth of triple play services has led to "quadruple play" service where wireless communications is being introduced as another medium to deliver video, Internet access, and voice telephone service and “quintuple play” where long distance telephone is added to the mix.
Industry Canada has responsibility for the licensing regime governing wireless communications, including the awarding of spectrum licenses to companies, and for the terms and conditions for these licenses. The Canadian Radio-Television and Telecommunications Commission (CRTC) enforces the regulations set out by Industry Canada. Over the last ten years, a dramatic shift has occurred in Canada from highly regulated telecom monopolies, with extensive foreign ownership restrictions, to more loosely regulated private markets. This trend is expected to continue.
In April 2007 the Government of Canada (GOC) announced that it would continue to deregulate the telecommunications market, including allowing incumbent providers to set prices in markets where competitors are providing fixed telephony services via other facilities (such as wireless or cable). The announcement also specified that the government would not regulate in markets where at least 2 carriers service seventy-five percent of residential customers.
Further deregulation in telecommunication, broadcasting and new media markets is expected during 2008 and 2009, including possible loosening of Canada's foreign investment restrictions.
By Tracey Ford, Valeriya Blazkho and Robin Dunbar