Impact of wholesale rates, pick-and-pay will be felt in 2017: Canaccord

The initial pinch of the CRTC’s decisions on two important issues in 2016 — wholesale rates and pick-and-pay — will be felt in the new year, according to Canaccord Genuity analyst Aravinda Galappatthige. In a Thursday note forecasting the year ahead, Galappatthige said wireline competition, which he noted previously will pressure telecoms in 2017, will be exacerbated by the CRTC’s October decision on wholesale rates. “Not only would wholesale revenues for the likes of and be negatively impacted, recent price revisions by re-sellers…suggest that the incumbents could face stiffer competition.” TekSavvy Solutions Inc., for example, recently adjusted its prices downward in response to the decision. Galappatthige said, however, that reseller pressure will be less of a factor in western Canada. This wireline competition and a relatively strong wireless business in 2017 means that “the relative attractiveness of wireless fundamentals over wireline would be even more pronounced going forward that we have seen in the past,” Galappatthige said. Though it has been present for some time in Ontario, the competitive current on wireline is finding its way, though to a lesser extent, in Western Canada and there are signs of it in Quebec, as well, Galappatthige said. He said this could put pressure on residential wireline revenues. And despite Bell seeing some “competitive reprieve in the near term” after Rogers abandoned its own IPTV platform for Comcast Corp.’s own, Galappatthige said that competitive intensity still “remains elevated.” Additionally, the impact of the pick-and-pay regime — the final phase of the CRTC’s basic TV mandate implemented on Dec. 1 — will be seen the new year, he predicted. Galappatthige said the new regime could affect cable revenue per user due to companies making “notable adjustments to their packages so as to make the existing options more attractive.” But Galappatthige said he doesn’t expect to see a “substantial” take up of pick-and-pay options from consumers. In a Dec. 21 note, Desjardins Capital Markets analyst Maher Yaghi added to discussion on the TV environment, saying that pressure on TV will remain an important factor in 2017, noting over-the-top (OTT) players have been making an impact in increasing ways. Yaghi raised Netflix Inc.’s offering of an offline viewing option for its programs in November; Amazon.com Inc.’s video service entering the Canadian market in December, and the potential launch of a live TV service delivered over the Internet by Alphabet Inc.’s YouTube, which could all put pressure TV service providers. Meanwhile, despite sports channels being an important reason why consumers have TV subscriptions, Yaghi notes that segment has been experiencing subscriber losses, citing a Forbes article on declines at The Walt Disney Co.’s ESPN. Galappatthige said the wireless postpaid gains made by the incumbents in the second and third quarter of 2016 will only continue, echoing a similar forecast by RBC Capital Markets’ Drew McReynolds last year. Greater subsidies, which would lower up-front payments for devices, and a greater mix of higher-end devices “are proving to be a very potent incentive for consumers, which not just drives smart phone penetration, but entices them to higher tiered…price plans,” Galappatthige said. Companies like Telus Corp. with exposure to Western Canada are expected to reap the benefits of a rebound in the region, with stabilization in Alberta, Galappatthige said, adding the company also has a "wireless heavy asset mix" to benefit from strength in the space. But telecoms will still face higher competition in wireless, according to a global telecom report released Wednesday by Macquarie Capital Market’s Greg MacDonald, as Shaw Communications Inc. launches its LTE service in central and western Canada in 2017. However, Yaghi and Galappatthige agreed that the impact of Shaw’s newly dubbed Freedom Mobile will not raise concern for incumbents just yet. They alluded to Freedom’s limited line-up of handsets and narrow LTE coverage, while Galappatthige said the company could have an impact if it acquires new spectrum, such as Quebecor Inc.’s Videotron’s 700MHz holdings. — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Impact of wholesale rates, pick-and-pay will be felt in 2017: Canaccord

Broadcast | January 5, 2017

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