Last week, I looked at “The evolution of broadband services” and I thought it would be worthwhile to examine some of the implications of those trends.
As we saw in the subscriber growth figures, the overall market is maturing as broadband penetration rates approach saturation. That has important implications for industry participants. Recent investment analyst reports have highlighted the challenges for some carriers facing slowing growth, such as BMO Capital Markets February 23 report (Soft Q4 Reflects Mature Market) and Scotiabank’s February 24 report (Quebecor – Expansion Strategy Is Needed To Return To Growth). BMO wrote
Quebec market mature and competitive. Quebecor’s results over the past six quarters reflected a slowing growth profile based on two dynamics; 1) the maturation of its wireless franchise (which has reached its natural level of 25% share in a four player market); and 2) increased wireline competitive intensity as BCE is aggressively capturing share (reflecting its scale in its FTTH fibre footprint).
How can service providers grow their businesses in such an environment?
Let’s take a look at the CRTC data showing the evolution of consumer broadband services.
Consumers are choosing to subscribe to higher speed services, with three quarters of Canadians subscribing to broadband services delivering download speeds of more than 50 Mbps in the third quarter of 2022; sixty percent subscribe to speeds over 100 Mbps, up 10 percentage points from a year and a half earlier, when only half of Canadian households subscribed to broadband services over 100 Mbps.
Consumers have demonstrated a willingness to pay for faster broadband. That requires investment, but it is investment that pays off with higher revenues. Therein is one of the common sophomoric errors made by some telecom industry critics who confuse price with ARPU (Average Revenue Per User). In fact, the price of higher speed services has declined over time, which is one of the reasons that more consumers are electing to upgrade their connection to a faster service. Between third quarter of 2019 and third quarter 2022, average monthly downloads nearly doubled (from 204.8 GB to 394.4 GB). In the same three year period, average monthly uploads increased nearly 50% (from 25 GB to 34 GB).
The mix of customers at each product tier has changed for many carriers, transitioning toward higher speed premium services as consumers select a connection that delivers the best value for their steadily increasing connectivity needs. The Scotiabank report observed that Bell is spending close to $20B on its FTTH (Fibre to the Home) strategy, to bring FTTH to 9 million premises by 2025.
One way a carrier can grow its business is by investing, perhaps to be able to offer more advanced services, or to expand networks to underserved areas.
Another approach is by acquisition. As some industry participants look at the capital investment required to upgrade their services portfolio, some choose to exit, which may be a driver for many of the recent acquisition in the Canadian broadband market. Faced with the increased competitive intensity described by BMO, some ISPs have been acquired over the past year by bigger, facilities-based carriers. A Scotiabank report dated March 6 suggests that third party internet access (TPIA) and fixed wireless access (FWA) are tools that may enable mobile wireless carriers to offer bundled services beyond their traditional home territory.
Videotron is looking to expand the geographic reach of its mobile and internet services into Ontario and Western Canada by acquiring Freedom Mobile and leveraging the expertise of recent acquisition, VMedia. As BMO wrote, “The reality likely is, not only does Quebecor want the Freedom transaction, it NEEDS the Freedom transaction.”
It is a natural evolution of a maturing market.
Businesses operating in maturing markets need to find ways to differentiate themselves from their competitors, through innovation, improving customer service, or creating unique products or services that meet the evolving needs of consumers.
These continue to be interesting times in Canadian telecom.