Prepaid’s declining relevance in Canada
Looking at the last few years there have been some dramatic changes in prepaid in the Canadian market. Canada might already have the lowest percentage of subscribers of any market we know. The chart below shows how Bell, Rogers and TELUS compare with Vodafone operators in 21 countries. This chart shows that only the UK, Spain and the Netherlands have less than 50% prepaid and Italy has 82.5% prepaid.
All of the incumbent carriers are shedding prepaid customers in favor of postpaid customers, while the new entrants engage in a price war for the bottom end of the market. Bell has consistently being moving away from prepaid since Q3 2007 and only increased before this on the back of Virgin. Rogers has been moving towards postpaid consistently until the introduction of their second fighter brand chat.r and TELUS increased their prepaid mix with the introduction of Koodo, but prepaid percentage has been declining for all incumbents recently.
ARPU & Churn
Since prepaid is becoming a less significant part of the overall customer base, it has positive impacts on two key metrics: Churn and ARPU. The recent success in the incumbent blended ARPU increases and blend churn declines can in part be attributed to a smaller base of prepaid subscribers.
It seems like the incumbents have made a strategic decision to move away from prepaid. They have managed to entice many more subscribers into expensive postpaid plans by offering great subsidies in return for a 3-year contract. So fickle subscribers who might be switching prepaid SIMs in other counties are instead stuck with a carrier sponsored SIM-locked high-end device. This has led to higher rates of smartphone adoption and our carriers offer some of the best network coverage, quality and speed on the planet, but at a price. The incumbents have very cleverly isolated the price war to lower end devices, on slower networks with less coverage. So the new entrants fight for fickle customers who will leave to save a few cents, while the incumbents have managed to keep healthy margins and maintain their already high price per minute and price per megabyte charges.
It seems hard to believe that Canada is so different in terms of the overall market structure, yet the incumbents are going from strength to strength by playing by a different set of rules to the new entrants. Despite much help from our government, finance and knowledge from abroad, the new entrants have been unable to re-invent the Canadian wireless landscape.
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