Explosion of data deals may dampen revenue for wireless giants: analysts
Canada’s wireless industry appears relatively calm after a storm of promotions late last year, but the unprecedented data deals may have lingering effects on revenue growth at the country’s communications giants.
Analysts predict BCE Inc., Rogers Communications Inc. and Telus Corp. will report stable first quarters — it’s a traditionally slow period for the industry — but they’ll closely watch for deceleration in money earned from each subscriber.
“We do expect that wireless results could show a slight downturn in terms of average revenue per user growth as some of the promotional offers in the fourth quarter and strong previous performance pressure year-over-year growth rates,” Desjardins analyst Maher Yaghi noted to clients this week.
The pressure stems from heavy discounts over five days during the holiday shopping rush, when the Big Three all offered a plan with 10 gigabytes for $60 per month. The deals matched similar plans from Shaw Communications Inc.’s Freedom Mobile, which started selling the iPhone for the first time in December. Low price plans can dampen revenue growth over time because consumers tend to be locked in to two-year contracts.
Despite the heightened competition, average revenue per user grew last quarter for the Big Three, which collectively added 305,000 more subscribers in 2017 than the year prior. Executives credited high demand for mobile data for the increased revenue.
Heavily discounted plans disappeared in the New Year, but analysts are monitoring Shaw ’s results to see how much of an impact it may have as a fourth competitor in the major markets of Alberta, B.C. and Ontario.
Yaghi expects Shaw to have a “measurable increase” in customer loading given its iPhone offering and marketing push, although he noted it will take more time to see whether the results are sustainable.
RBC Capital Markets analyst Drew McReynolds expects “incremental wireless traction” from Shaw, but believes the large operators will be able to absorb the impact given the healthy level of activity in the industry.
That could mean higher cell phone bills for customers. Core price increases at the large operators are expected to ease slowing growth in average revenue per user, McReynolds said in a research note this week.
Barclays analyst Phillip Huang said he’s less concerned about Shaw’s direct impact on the Big Three given its “still nascent network and limited distribution.
“However, we believe heightened wireless competition is inevitable this year,” Huang noted this week.
“The probability of the Big Three responding with promos that escalate across the major markets (like the one in December) remains a concern for us into the more active quarters later in the year.”
Analysts also expect some disorder in the quarter given the adoption of new accounting rules. Under IFRS 15, wireless carriers must account for smartphone revenue immediately instead of spreading it out over a two-year contract.
This will decrease average revenue per user and increase equipment revenue. In theory this shouldn’t affect value because the same amount of money changes hands, but it could give the impression companies are earning less each month.
Shaw is scheduled to report its results on Thursday, Rogers next week, and Bell and Telus in early May.