Disappearing Canadian Landlines
For the last 14 consecutive quarters, the telecoms companies of Canada have lost more subscribers than the cable companies have gained. This had happened a few times in the past, but was put down to timing like moves in Quebec. The real driver for telecoms landline losses was cable. Not anymore. In Q2 2012, Bell, TELUS, MTS and Bell Aliant lost nearly 188,000 landline subscribers between them. In the same period, Rogers, Shaw, Videotron and Cogeco only added 56,000 cable telephony subscribers. Note that MTS actually added landline customers, something that has happened every Q2 for the last six years.
Fixed wireless substitution
In previous quarters telecoms executive have put this down to customers increasing reliance on wireless. This makes sense with improved wireless coverage and speeds for wireless data (since many took a landline because they needed the internet anyway and cable companies offered landline for as little as $10 extra if you took a bundle), but it is not supported by the data. The last CRTC published number of 13% wireless only households in 2010 was significantly below the USA equivalent at 25% at the same time. We also have not seen an uptick in incumbent postpaid subscribers that one would associate with wireless only households.
Anatomy of a wireless only household
Why would we expect the wireless only subscribers to be postpaid and with incumbents? If you only have one phone, firstly it would need to work at your home with good in-building coverage. New entrants WIND and Mobilicity have less coverage and weaker indoor signals due to less effective AWS spectrum. If we further assume that many wireless only households will also be in condos as this demographic is more likely to be comfortable relying on wireless, they would probably have to sign up with an incumbent to get coverage above the 5th floor in a concrete and steel structure. So why postpaid rather than prepaid? Well assuming this demographic wants a smartphone that will serve all their household needs, they will want the handset subsidy and voice/data plans that can support all their needs.
As you can see from the chart the telcos continue to shed customers in business and consumer. At the same time, the cablcos are not growing their cable telephony bases. If they are not going to wireless, we can only assume that they are going to smaller VoIP providers.
There is a growing number of small CLEC and VoIP providers. Many of these offer very reasonable termination rates, Long Distance at the same price as local and significantly lower MRC. In addition all of the features like voicemail, caller ID and 3-way calling come standard. Starting a CLEC or VoIP provider has never been easier and the low capital requirements mean many can offer services at much lower rates, but customer acquisition is still a problem. Particularly in an industry where the same telcos and cablecos dominate the media which is required to advertise your services and create a new brand. Even reasonably well funded wireless new entrants have struggled to create a proposition where you can acquire a new customer at an investment that makes sense. It might make sense for a company like Bell to acquire a new wireless customer at $400 since they will make this back in the year and have financing at a cost of capital less than 3%. For a new VoIP company to make a return the acquisition costs per customer need to be significantly lower, probably less the $20 per customer. But $20 per customer does not even get you the first page of a Google search, which relegates them to word of mouth, radio and affordable outdoor advertising. But these media also have a self selection problem, so they attract the wrong customers, who they never make any money from.
Telcos and eventually cablecos will continue to lose customers to wireless and better VoIP providers. According to the CRTC there are 605 licensed VoIP providers that must establish brands and this probably means significant consolidation to get economies of scale. Ironically VoIP providers need very little scale to provide a service, in fact this is one of their competitive advantages against the ageing technology of the landline. But they do need scale to achieve customer acquisition at a reasonable investment.
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