Canada / Analyst Insights
Canada’s Big Three Telecom Providers Set to Lose Market Share

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by Ediz Ozelkan Analyst
Apr 18 2018

Innovation, Science, and Economic Development Canada is seeking to subvert the dominance of the big three wireless telecommunication carriers by allocating 43.0% of the radio-frequency spectrum available in its upcoming auction to regional and new operators, representing a far greater proportion devoted to such players than in past auctions. The forthcoming 2019 auction, which is for low-frequency 600 MHz spectrum, is poised to have ramifications for both the wireless and wired telecommunication industries moving forward. Ultimately, if regional and new wireless providers add to their existing bandwidth to boost competitiveness, it could reduce the market dominance of the big three telecommunications companies (BCE Inc., Telus Corporation and Rogers Communications Inc.), while also granting increased access to untapped and underserved markets outside of metropolitan centres. Canada’s last spectrum auction happened in 2015, leaving competitors hungry in the interim.

Wireless Telecommunications: Opposite Sides of the Spectrum

The Wireless Telecom industry in Canada is heavily concentrated, with the top five players controlling an estimated 94.5% of the market in 2018. Still, this figure belies the dominance of the big three, which collectively capture an estimated 88.7%. According to the Canadian Radio-television and Telecommunications Commission, in 2016 (latest data available), these three companies held 89.0% of all wireless subscribers. Smaller operator Quebecor Inc. (participating through Videotron) is projected to account for 3.0% of industry revenue in 2018, while Shaw Communications Inc. (through Freedom Mobile) is expected to comprise 2.8%. The remaining 5.5% of industry demand is satisfied by myriad local and regional operators including Bragg Communications Inc. (doing business as Eastlink) and Saskatchewan Telecommunications Holding Corporation (SaskTel), among others. Importantly, many of these regional providers do not own spectrum, relying on the big three or other companies for access to their infrastructure. For example, Shaw only entered the Wireless Telecommunications industry through its acquisition of Wind Mobile in 2015, further bolstered by the purchase of low- and high-frequency spectrum from Quebecor in 2017. The spectrum auction is meant to stoke competition within this concentrated landscape by diversifying licence-holding wireless providers.

canadian telecom net growth graph

Notably, the last few Canadian spectrum auctions offered a mixture of high- and low-frequency options. Low frequencies can be used in tandem to target large geographic areas, while high-frequency spectrum is best concentrated in densely populated areas. Therefore, larger players with a handle on both high and low frequencies can navigate the wireless market more fruitfully than smaller players. The most recent Canadian auctions included the 2014 sale of 700 MHz low-frequency licences (99.0% sold), and the 2015 auctions of high-frequency AWS-3 spectrum (92.9% sold), high-frequency 2500-2690 MHz (95.0% sold) and a combination sale of low-frequency 750 MHz and AWS-3 (83.3% sold). In the case of the combined 750 MHz and AW-3 auction, 74.7% of the available spectrum was purchased by the big three, leaving their smaller competitors with the scraps. However, many licences are also acquired by industry resellers rather than smaller, consumer-facing operators. In this way, spectrum is often flipped to be sold to the big three companies regardless, somewhat limiting the extent of diversification that auctions try to produce.

Additionally, spectrum auctions, while historically a viable channel for acquiring licences, are few and far between, particularly for low-band frequencies, due to the increasing dominance of high-frequency spectrum for developing 5G networks. The 2019 auction, however, is principally concerned with disseminating low-frequency 600 MHz spectrum licences. Low-band spectrum is perfect for travelling long distances, boosting wireless providers’ capability of giving access to underserved communities. Low-frequency spectrum also requires less infrastructure, with 600 MHz frequencies using an estimated 20.0% fewer cells to cover the same area as a 700 MHz cell. Thus, the upcoming auction provides opportunities for smaller telecommunications companies to expand into previously untapped markets.

The Effects of Spectrum Auctions

These auctions have been the catalyst for increased market share concentration over the past five years, working both for and against the industry’s competitive landscape. Market share concentration rose from 89.7% in 2013 to a projected 94.5% in 2018. Meanwhile, the number of wireless providers is only projected to increase from 32 operators in 2013 to 35 in 2018. However, IBISWorld expects these new additions to be spectrum resellers rather than consumer-facing licence holders. Nonetheless, while the big three companies exhibited a combined net increase of only 0.2% in market share during the period, smaller operators, led by Quebecor and Shaw, boosted their market share by a more significant 5.4% collectively. Of the big three, only BCE increased its market share during the period. In contrast, Shaw boosted its market share from 1.1% of industry revenue in 2016 to an estimated 2.8% by 2018, despite its late entry to wireless operations. Similarly, Quebecor grew its market share from 1.2% in 2013 to a projected 3.0% in 2018. Accordingly, the upcoming auction will likely affect the industry’s landscape moving forward, as it provides these companies with an unprecedented opportunity to continue their rapid growth. However, there are also potential ramifications for Canada’s Wired Telecommunications Carriers industry, as it is dominated by the same players.

canadian telecom canva

Currently, IBISWorld estimates that the Wireless Telecommunications Providers industry will grow at an annualized rate of 3.8% over the five years to 2018, while revenue is forecast to rise an annualized 3.4% over the five years to 2023. In comparison, the Wired Telecommunications Carriers industry is expected to exhibit tepid growth, rising an annualized 0.5% over the five years to 2018; furthermore, it’s forecast to decline an annualized 1.5% over the five years to 2023. These countervailing trends are expected to influence the overall performance of the three major telecommunications companies, which have both wireless and wired operations. BCE captures an estimated 47.5% of the wired telecommunications market in 2018, while Telus holds 23.2%, according to IBISWorld estimates. The slow growth in wired telecommunications over the past five years, and its subsequent projected decline, are expected to reroute funding to wireless activities, which tends to be more lucrative. More specifically, profit margins for broadline operators are estimated to reach 19.5% on average, while wireless providers attain an average 23.2% margin according to IBISWorld estimates. Thus, the outcome of this spectrum auction, with its historic 43.0% allocation to smaller players, is expected to shake up the big three in the ever-evolving telecommunications sector.

Edited by Sean Egan. Designed by Miranda Romano. 

Industry Impact: Wireless Telecommunications Carriers; Wired Telecommunications Carriers