Canada Telecommuncations Report Q2 2008

Despite slower growth in the first two quarters of 2007, the mobile market picked up again in the second half of the year, adding more than 1mn subscribers. Expanding by 8% in 2007 with subscriptions just short of the 20mn mark, which BMI believes was achieved in early 2008. Despite the strong growth in the second half of the year, there are signs that the market is slowing with the overall growth rate for the year two percentage points lower than in 2006. However, slow steady growth has long been the trend in the market, and we are expecting the slowdown to be marginal in terms of year-on-year (y-o-y) growth with the market forecast to expand by 7% in 2008 with growth slowing to 5.6% in 2012 when penetration is forecast to reach 79%. The expected auction of wireless spectrum in May 2008, however, could see the entrance of a new operator into the market as 40MHz of spectrum has been reserved from the 105MHz available. The three largest operators will be required to allow any new operator to use their networks for up to 10 years while its own network is built. This could potentially bring some new competition into the market giving growth rates a boost and seeing penetration higher than expected. Interested companies include Manitoba Telecom and Quebecor Media Inc.

Canada's broadband market grew faster than BMI's estimates, reaching 9mn subscribers in the final quarter of 2007. The growth rate in the market was faster than for mobile and fixed-line, and Canada remains the country with the highest broadband penetration outside of Asia. The dominance of the four largest operators, though, seems to be slipping with these companies owning less than 70% of the market at the end of 2007. All operators saw strong growth rates, over 10% y-o-y with the exception of Bell Canada, although it remains the largest operator, albeit with a market share of 22.2%, down from 23.8% a year earlier. The strength of triple-play services has also benefited cable operators, which have seen increases across their subscriber bases.

Fixed-line services continue to fall, although the strength of cable operators has helped stem the decline with traditional circuit-based operators seeing the largest declines while cable-based operators boosted both their subscriber numbers and market shares. Overall the market declined by just 0.6% with the heaviest losses recorded by Bell Canada, TELUS, and Bell Aliant. Rogers saw a 11.9% fall in PSTN lines while its cable-based voice customers increased by 33.4%. BMI expects the fixed-line market to continue falling as mobile services become more sophisticated and widespread reducing the need for fixed-line services. However, we expect the market to only fall below 50% penetration in 2010 with decline rates of only 2%, on average.