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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Q4 2011 Wireline Results – Canada


In Q4 we had some interesting activities in Canada.  TELUS had some exceptional results, but otherwise all trends stayed the same.  Firstly wireline phone:  Overall nets for cablecos were lower than Q3 2011 but higher than Q4 2010.  The real cableco winner was Cogeco, which has 24k nets vs. last year where they added less than 18K.  This represented a 37% improvement y/y and 83% improvement sequentially!

On the telco side wireline phone subscriber losses slowed mainly due to TELUS, which had NAL losses of 48k vs. last year’s 55K and Q3 2011 which was 43K losses.  Bell’s NAS losses were worse by 62% y/y whereas TELUS had a good quarter with NAL losses slowing by 12% y/y for the same quarter.  Bell Aliant almost lost as many customers has TELUS, despite having a base that is nearly a million subscribers smaller.  MTS

Q4 2011 wireline phone net adds in Canada

Q4 2011 wireline phone net adds in Canada

In this chart it is clear that the total line lost by the telcos was significantly larger than the total new nets won by the cablecos.  In 2011 this was increasingly the case every quarter and in Q4 more than half the teclo losses did NOT go to cable.  We assume that these customers are going to a combination of wireless (fixed-wireless substitution) which we believe was exaggerated in the GTA and Montreal due to Public mobile.  Some of these customer also went to resellers and VoIP providers.

Telco losses have outstripped cableco gains every quarter since Q4 2008 and this trend is accelerating, as you can see in the next chart.  Bell alone lost more customers than Rogers, Shaw, Videotron and Cogeco together gained.

Substitution = cable gains less teclo losses

Substitution = cable gains less teclo losses

The chart below still shows how Bell and TELUS dominate the landline space, mainly due to their enterprise dominance.  We expect that this will accelerate down with cheaper and better VoIP solutions.  Bell is already on a downward trend, although much of this is in consumer.

Q4 2011 landline subscribers

EOP landline

In wireline phone, the telcos are losing customers at a faster rate than cablecos are gaining them.  While the overall residential market is in decline, cablecos are still gaining share.   Shaw has passed the 40% of share between them and TELUS, Rogers+Videotron+Cogeco now have 45% of the markets that Bell operates in and we believe that Eastlink (which is a private company, so does not report these numbers) is over 50% in urban areas.

Q4 2011 Residential wireline phone subscribers

Q4 2011 Residential wireline phone subscribers

In summary, after many quarters of cable companies easily picking up phone subscribers, their growth has slowed but in aggregate, the telcos continue to lose customers.  Since 2007 cable companies have gained 144,000 customer per quarter and on average the telcos have lost 164,000 customers per quarter.  (c) Alphasynb


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