fixed-line substitution

Disappearing Canadian Landlines

Disappearing Canadian Landlines



Churning landline customers are leaving telcos, but they are not going to cable

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.

Canadian landline subscribers

Telcos are declining and cablecos increasing, but not at the same rate

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.


The numbers

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.

Landline net adds

The telcos continue to shed customers, but they are not all going to cable companies

 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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Cutting the cord

Cutting the cord

Recently much has been written about cutting the cord.  This phrase can refer to a number of situations, but the two most obvious in today’s parlance are either dropping your home phone or your cable TV.

At home, we have done both and it has been amazing, liberating and has had the side benefit of transforming our family off the couch and into the other rooms in our home.  The interesting thing is we spent over a decade in the UK, where only 12% of home have cable TV – in fact over 50% of home have free digital terrestrial TV.  In the UK there is an annual TV license that helps pay for this and also for creating content and everyone has to pay it, even those that have cable.  In the UK there is also more fixed-wireless substitution.  At least 12% of houses in the UK only have a mobile phone (this is a 2009 figure, but we could not find an updated number).  This is partly because it is free to receive calls on your mobile phone in the UK in a caller pays model.  This makes the barriers to being a mobile phone subscriber significantly lower and unused wired phones at home are disconnected.  But the number of home phones is also much higher than it needs to be because BT dominates the broadband provision in the UK and they require you to have a home phone to have broadband.  (Or at least the discount means you pretty much have to take it.)  Do we use the TV, absolutely, we have Netflix have two AppleTVs (being ‘early adopters’ we got them both on the first day of their launch) and there is a lot of legal content streamed on the internet.  (We do not download pirated movies or music).  We watched the Superbowl live and had the choice of 5 camera angles and got to watch the USA adverts to boot!  Increasingly content providers will go around the same expensive cable and satellite solutions that consumers want to avoid and the telecoms and cable companies can focus their attention on providing really good internet.

At the beginning of March Comscore released their 2012 Canada Digital Future in Foucs.  The Comscore data reaffirms that Canada’s population spend more time on the internet and use the internet more than people in any other country.   The skeptic in me wants to say that we spend more time on our internet because our internet in Canada has the unique characteristics of being both one of the most ubiquitous and the slowest.  So it is everywhere, but slow due to the lowest levels of fibre to the home in the OECD.   On a more positive note, nearly 100% of homes have internet that is fast enough for VoIP.  Open standards-based VoIP solutions should be used at home and on your mobile phone.

What Bell, Rogers and TELUS have done is invest in wireless.  They have all deployed LTE in most urban areas and we would surprised if we don’t have near the highest population coverage of HSPA+ anywhere in the world.  But these are data networks, not voice networks.  These high speed data networks are often faster than copper wire and cable based internet and this week, the FT reported that Telefonica demonstrated it could consistently deliver 76Mbps at the MWC in Barcelona.  This is most than 1,000 times the speeds needed to offer a good VoIP call with better fidelity than either a landline or normal mobile phone call.   So let’s use our super fast Canadian data networks for voice!

Canadian cord cutters

Canadian cord cutters

The home phone market has changed a lot over the last few years and in Q4 alone over 120,000 customer left the incumbent telecoms companies (Bell, Bell Aliant, MTS and TELUS), but did NOT take a new service from any of the cable companies.  Are these subscribers going wireless or to alternative VoIP providers?  We are not sure, but we suggest you do both.  There are VoIP solutions that allow customers to download a smartphone app and use their smartphone for good quality VoIP calls over wifi, 3G or 4G networks.  Finally something valuable that can use up your mobile data plan – voice!  © Alphasynb

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