May 17 2019
In March, Canada’s wireless and wired telecommunications providers participated in the country’s second major spectrum auction since 2015. Over 18 days, 12 companies participated in 54 bidding rounds, after which the federal government awarded 104 licences to nine providers and generated $3.5 billion. Bids were centered around the 600MHz band, which possesses a frequency capable of anchoring fifth-generation (5G) deployments, penetrating buildings in dense cities and covering rural areas. Moving forward, Canada’s telecommunications sector will feel the brunt of the auction’s ramifications as companies prepare to roll out 5G technology over the five years to 2024.
Canada’s Wireless Telecommunications Carriers (IBISWorld report 51721CA) and Wired Telecommunications Carriers industries (51711cCA) are not only characterized by high market share concentration but are dominated by three telecommunications companies, known as the “Big Three”: BCE Inc. (Bell), Rogers Communications Inc. and Telus Corporation. While the implementation of 5G technology will present opportunities for growth, industry operators will also contend with setbacks as Canadians increasingly cut wired phone services in favour of solely wireless communication.
Wireless Telecommunications Carriers in Canada
The Wireless Telecommunications Carriers industry grew rapidly over the five years to 2019, with revenue forecast to increase at an annualized rate of 4.2% to $29.5 billion. Characterized by a very high level of market share concentration, the industry’s the top five operators generated 96.0% of industry revenue in 2019. Concentration increased during the period despite government attempts to promote competition through spectrum auctions. For example, in the 2015 spectrum auction, smaller operators such as Freedom Mobile Inc. entered the industry only to be acquired by larger companies in the following years.
Continuing its attempts to reduce the “Big Three’s” dominance, the Canadian government structured the 2019 auction so that smaller operators were able to place competitive bids. Innovation, Science and Economic Development Canada (ISED) prohibited Bell, Rogers and Telus from bidding on 43.0% of the available licences, which were set aside for operators holding a market share lower than 10.0%.
However, Rogers still dominated, spending $1.7 billion to secure 52 licences in every province and territory. Telus, the second-biggest spender, Telus paid $931.2 million to acquire 12 licences. Conversely, Bell, which captured 29.2% of industry revenue in 2019, did not participate. However, a number of smaller companies successfully bid on licences, including Eastlink Inc., TBayTel and Xplornet Communications Inc. Consequently, IBISWorld forecasts the number of industry enterprises will rise an annualized 1.8% to 35 companies over the five years to 2024 as small operators attempt to service underserved markets. However, the economies of scale and infrastructure efficiencies possessed by larger operators will keep market concentration stable.
Wired Telecommunications Carriers in Canada
In contrast, the Wired Telecommunications Carriers industry is anticipated to contract over the five years to 2019. Revenue is forecast to fall at an annualized rate of 0.4% to $24.6 billion as rapid technological advancements have pushed the industry to the sidelines of communications. External competition from the domestic Wireless Telecommunications Carriers industry is anticipated to increase over the five years to 2024 as 5G technology makes wireless communication an increasingly attractive substitute to local and long-distance wired communication.
Consequently, industry revenue is forecast to fall at an expedited annualized rate of 1.1% over the five years to 2024 to $23.3 billion. The industry’s decline is expected to influence the overall performance of the “Big Three”, as each of which have both wireless and wired operations. In 2018, Bell accounted for 37.4% of industry revenue, followed by Telus (16.9%) and Rogers (8.3%). Slow growth in wired telecommunications during the period is expected to reroute funding to wireless activities, particularly 5G implementation.
Furthermore, industry operators contend with competition from Voice over Internet Protocol (VoIP) software, which transmits voice in data packets over the internet. Subject to relatively light regulation, VoIP service operators have used pre-existing internet infrastructure to offer lower-priced telephone services. As VoIP relies heavily on sufficient download and upload speeds, 5G networks will facilitate smoother connections and prevent network delays, thereby increasing competition. As a result, the number of industry enterprises is anticipated to contract at an annualized rate of 1.7% over the five years to 2019 to total 56 companies.
Competition is a key driver of innovative and affordable telecommunications services. Although the 600 MHz band is not as essential for 5G as the 3500 MHz band, which is slated for auction around 2020, the latest auction has the potential to affect both the Wireless and Wired Telecommunications industries over the five years to 2024. Despite the geopolitical uncertainties surrounding its implementation, 5G technology will affect numerous industries as faster speeds and lower latency present new opportunities and challenges.
Edit & Infographic Design by Rebecca Simon, Marketing Editor
Charts by Robert Miles, Senior Strategic Research Analyst