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Canada Plan to Increase Telecom Competition Runs Into Weak Signals

The Canadian Radio-television and Telecommunications Commission (CRTC) announced on April 15 that the country’s ‘Big 3’ telecommunication companies will be mandated to give smaller regional operators access to their networks. These smaller companies would be considered mobile virtual network operators (MVNOs) and buy wholesale access to these networks and resell it. The CRTC aim here is to increase competition in the Canadian telecom market through these MVNOs. However, the criteria laid down for these MVNOs has put a question mark on the success of this plan.

Dominant Networks

The focus is on distributing networks from the ‘Big 3’ – Bell, Rogers and Telus – but the CRTC has also incorporated regional network provider SaskTel as a dominant network provider in Saskatchewan. The CRTC outlines that the wireless carriers will be able to sell their networks to MVNOs based on the following provincial distribution:

  • Bell, Rogers and Telus in all areas except Saskatchewan and the territories
  • SaskTel in Saskatchewan
  • Bell Mobility in the three territories of Yukon, NWT and Nunavut

The layout of where these networks can be sold has been made clear, but the CRTC has not outlined any mandated pricing or rates at which the networks can be sold to the MVNOs.

Qualification for MVNOs

The CTRC has laid out some criteria for the prospective MVNOs. The major qualification needed here is that these regional companies must have existing Canadian networks. This complicates the definition of what a true MVNO would be in Canada, as in the normal course an MVNO has no previous infrastructure of its own. With the CRTC granting access to companies which have already contributed to the development of competition in the Canadian market, the eligible regional companies would be:

  • Eastlink
  • Videotron
  • Xplornet
  • Ice Wireless
  • TBayTel

The announcement of this MVNO mandate has come days after the deadline for the bid to participate in the 3500MHz spectrum auction in mid-June.

Timelines

The CRTC will play an active role in mandating the wholesale MVNO access service for seven years to encourage individual MVNOs to build their own network. The national carriers must also give the CRTC a breakdown of their plans and updates on the progress to lower-cost and introduction of occasional-use plans every six months.

However, considering that the CRTC intends to improve the level of competition in the Canadian market, the latest move seems to be only a baby step where a giant leap is needed. This mandate states that it will be targeted towards helping MVNOs introduce competition. But if these regional companies already must have their own spectrums, are they really MVNOs? The power is still left to the national carriers to decide the rates at which they will sell these network shares, and it is safe to assume they will not be willing to lose money over this mandate.

Canada Moves to Expand Broadband Access to Remaining 10%

The Canadian Radio-television and Telecommunications Commission (CRTC) has announced that it will be awarding $84.4 million in funding to 12 projects to enhance broadband connectivity in underserved rural regions in northern Quebec, Ontario, Saskatchewan and British Columbia. These projects will collectively include laying of around 2,000 km of fiber network cable to benefit 56 communities. The timeline for the projects is yet to be announced but they are expected to be completed by the end of 2021.

The money for these projects will be coming from the CRTC’s designated ‘Broadband Fund’. The CRTC made a call-out for applications to communities and municipalities to outline their need for broadband expansion, including how much funding and materials would be required for the project. More than 600 applications were received from across the country, resulting in a total request of $1.5 billion. The CRTC continues to evaluate and announce new projects once they have been approved.

In the current global climate, access to internet outside of urban hubs is important for those under a stay-at-home order due to COVID-19. Besides, these expansions will help rural development and setting up of infrastructure in unoccupied lands. This, in turn, may encourage population dispersion that the Canadian government wants.

Canada has an expansive landmass, which makes implementing broadband internet connectivity an expensive endeavor for the country. Concentration of population has made it easier for network providers like Rogers and Bell to access most of the population without having to expand infrastructure to cover large areas. Under 25% of Canada’s landmass has broadband connectivity but it can reach over 90% of the population, as most of the country’s population can be found concentrated in provinces like Ontario, British Columbia, Quebec and Alberta. Outside of such areas, internet connectivity is extremely limited, necessitating public investments in infrastructure improvement.

When comparing the country’s rural internet access with that in countries like the US, Canada is at a significant disadvantage due to the lack of internet carriers. Canada’s ‘Big 3’ – Rogers, Bell and TELUS – have a strong monopoly over the country’s wireless market. The US has internet carriers like Broadband Q that target rural areas to close the ‘digital divide’ between rural and urban centers. Canada has limited competition between carriers to trigger an expansion of broadband internet to areas considered “unprofitable”. This causes the need for government organizations to provide funding and resources to unite rural and urban centers in the expansion of broadband internet access.

The need for rural development has become a focus for the Broadband Fund, which has so far committed around $156.5 million to improve connectivity in 107 communities.

For more information about the Broadband Fund projects or on the CRTC, visit crtc.gc.ca.

 

5G Picks up Pace in Canada in Q3; Smartphone Installed Base Crosses Half Million in Oct

Toronto, Los Angeles, Buenos Aires, London, New Delhi, Hong Kong, Beijing, Seoul – November 24, 2020

Smartphone sales in Canada inclined 13% YoY in Q3 2020, according to Counterpoint’s North America Monthly Channel Share Tracker service. Apple and Samsung together accounted for 86% of the total sales compared to 82% during Q3 2019. In volume terms, Apple inclined 7% YoY despite the new iPhone sales being pushed to October, while Samsung inclined 21% YoY.

Senior Analyst Hanish Bhatia said, “Smartphone demand rebounded in Q3 2020 driven by pent-up consumer demand and solid uptake of back-to-school promotions. Retail activity picked up as consumers were now more confident about going outdoors. Online sales also remained strong with some consumers opting for store pick-up options. This trend is likely to continue as carriers push for a healthy mix of digital sales and brick-and-mortar sales. The market witnessed strong competition among carriers to gain share, especially among flanker brands. Customer churn remained comparable to 2019.”

Speaking on Canada’s 5G ecosystem, Bhatia said, “5G remained in focus as carriers shifted their marketing efforts to get an early lead among premium early adopters ahead of the Apple launch event. The number of 5G models has gone up from 3 in March 2020 to 14 in November 2020 after the recent Apple launch. As of October 2020, Canada had added more than half a million 5G devices to its networks. Most of the 5G device sales are restricted to the premium price bands, while average 5G device costs continue to decline in the US and other countries with 5G networks.”

Commenting on 5G opportunity, Research Director Jeff Fieldhack said, “Rogers leads the market in terms of 5G deployment, with active networks across 130 metros. With the most extensive network rollout and the largest Apple installed base, Rogers is in a good position for a strong 5G upgrade cycle during the fourth quarter. Bell and Telus also launched 5G network services at the end of Q2 2020 and continue to ramp up across Canada. Carriers are now more than prepared for a strong quarter, but another COVID-19 wave can play a spoiler with diminished consumer purchases. 5G in Canada is still in the early stages of deployment with carriers leveraging the existing spectrum assets for the initial 5G push. The sweet spot for 5G performance and coverage will be the 3.5GHz spectrum, and auctions for this spectrum will not be before June 2021. The carriers could take another year after the auctions to start using this spectrum.”

On OEM performances, Fieldhack added, “Apple remained resilient and maintained its lead over other brands. Supply constraints seen in Q2 2020 eased in Q3 2020. We see less display devices on retail shelves to protect against COVID-19 spread, especially in case of new iPhone 12 series. Samsung did well on a YoY basis driven by demand for the new Note 20 series and Galaxy A51 and A71 devices. The LG Velvet remained in focus for the mid-range 5G value consumers. Motorola registered strong growth on a YoY basis after facing supply issues during the last quarter.”

Commenting on the Canadian market outlook, Research Analyst Maurice Klaehne said, “We can expect a strong upgrade cycle as we enter the promotional period during Q4 2020 – Black Friday followed by Boxing Day. We are already seeing a great response towards the new iPhone devices, especially the iPhone 12 variant. However, COVID-19 has negatively impacted small businesses. Besides, this growth will be slightly offset by less immigration activity and fewer student purchases in Canada during the fourth quarter.”

Key Highlights:

  • Apple captured six spots in the top 10 best-selling devices during the quarter. The Apple iPhone 11 continues to be the best-selling smartphone for the fourth consecutive quarter.
  • Samsung captured the remaining four spots in the top 10 list. The Samsung Galaxy S10 series continues to do well along with the A51 and Galaxy S20 series devices. The new Galaxy S20 FE has also registered strong consumer response which will be of help during the fourth quarter.
  • LG registered single digit YoY growth with the help of the 5G LG Velvet and other K series models – K61 and K41S – in budget price tiers.
  • Google has been able to gain some momentum. Pixel 4A promotions were stronger than expected, but the marketing efforts shifted towards the newer Pixel devices such as the Pixel 5. The new Pixel 5 is already available at heavily discounted prices in early Black Friday deals.
  • Motorola has been able to gain share in budget category devices. The Moto E particularly did well among entry-level devices.

Please feel free to contact us at press(at)counterpointresearch.com for further questions regarding our latest
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Related Posts

  1. Apple Grew 17% YoY in Canada Defying the Global iPhone Sales Trend
  2. Canada’s Decision on Huawei, a Defining Moment in Relationship with China
  3. Global Smartphone Market Shows Signs of Recovery in Q3, Xiaomi reaches 3rd place and Realme grows fastest at 132% QoQ
  4. Implications of Equipment Installment Plans in Canada
  5. One in Two Smartphones Sold in Canada During Q2 2020 Was an Apple iPhone
  6. Operator Partnerships Hold the Key to Success in Canada’s Smartphone Market

Implications of Equipment Installment Plans in Canada

The introduction of equipment installment plans (EIP) in Canada’s telecom market is making premium phones affordable. With EIPs, one can get smartphones financed with 0% interest and can pay back the amount via monthly installments, generally over 24 months. Further, customers can combine EIPs with leasing plans (where a customer rents a phone for a fixed term, generally 24 months) offering great flexibility to consumers. This is a huge shift in the Canadian market as these kinds of options were not available earlier, which made the latest flagship devices way too expensive. As a result, for years, Canadians preferred to buy older flagships. Counterpoint has analyzed the impact of EIPs on various sections of the Canadian market. Following is a brief overview of the same:

  • Consumers: It’s a win-win situation for consumers. They can now get the latest flagship devices by paying smaller monthly installments rather than a huge upfront payment, which many found unaffordable. Further, by combining EIPs with leasing, consumers get the option to return the phone after two years. They can also choose to retain the phone after two years by paying a small amount, which will not exceed the amount to be paid in a traditional plan. Finally, customers can also choose to upgrade to a new phone after two years.
  • OEMs: The effect of EIPs on OEMs operating in different price bands will vary. With EIPs, OEMs will witness an increase in sales of their latest flagship models. Unlike the historical trend where sales of older flagship models were high due to discounted pricing, EIPs make newer phones more attractive to consumers. EIPs bundled with leasing can further reduce the price. For example, iPhone XR, X, and 8 are the best-selling models for Apple currently. With EIPs, we believe the iPhone XS and XS Max will see an increase in sales. Samsung and Apple are likely to benefit more from this by witnessing higher sales of newer models. Consumers will mostly use EIPs for high-end phones. Therefore, OEMs operating in the low-to-mid price bands are not going to benefit much. In fact, there lies a risk for them as their users may upgrade seeing some good deals.
  • Carriers: Carriers already have a very low churn rate in Canada, and with EIPs, it is likely to dip further. EIPs help operators to keep customers locked onto their network. Having the option at the end of the two years to upgrade to a new device will entice some customers to stay with their current carrier. Among the major carriers, Rogers and Telus have come up with EIPs. Bell is yet to start with EIPs, although it will be starting soon. Carriers are providing discounts on the handset price to customers, which reduces the monthly installments. Initially, carriers will have to compromise on their profit margins slightly. However, in the longer run, this will help increase the customer base, which they can monetize at a later stage.
  • E-Commerce: With EIPs, the little share of e-commerce players will further decline, although not much as carriers sell most of the flagship phones.

EIPs can play an interesting role in the Canadian market. However, the major challenge that lies here for the carriers is to bring everyone on the same page. EIPs comes with a lot of options and can become quite complex for the average consumer. This is why we believe that the impact of EIPs will be slow initially, but over the long-term, it will have a crucial impact on the market.

Operator Partnerships Hold the Key to Success in Canada’s Smartphone Market

Like in many developed economies, operators drive the Canadian smartphone market. More than 85% of smartphone sales take place through operators. Operators also dictate the market dynamics for smartphones. For example, incentives given by operators result in previous-generation flagships dominating the best-selling smartphones list. The Chinese brands, looking to enter this market, need to forge strong relationships with operators to be successful. Let’s take a closer look at the dynamics of the Canadian smartphone market:

  • Apple dominates: Despite a global decline in sales, Apple managed to hold more than 40% market share. In the 18-34 age group, people prefer using Apple phones because of attributes like brand image, build quality, smooth interface, and more. In the >35 age group, people are open to both Samsung and Apple.
  • Operator driven market: In Canada, the market is operator driven with Bell, Rogers, and Telus being the leaders. More than 85% of smartphone sales happen through these operators. Further, there is an increase in easy installment plans (EIP) in Canada, which makes all new flagships more accessible to the customers. Apple, Samsung are the key OEMs on operators’ platforms. Huawei has tripled since Q1 2018 due to operator tie-ups, but the further growth looks doubtful given the escalating trade tensions between the US and China.
  • Expensive data plans: The data plans in Canada are expensive, almost two times or even more those in the US, which are already on the costly side on a global basis. Apart from the dominance of network operators, a big reason for costly data plans is the low population of Canada, which results in a higher per capita cost for spectrum and infrastructure roll-outs. Data rates are crucial for choosing operators and the ones who provide cheaper plans end up attracting more customers.
  • Average Selling Price (ASP): Canadians have a relatively high disposable income. ASP for devices lies somewhere between US$580-US$600. This is where the sweet spot for the market lies in terms of price bands.
  • Large-screen preference: Canadian users have shown an interest in large-screen phones. Phablets have been in demand. There has also been a shift to bezel-less phones. More than 75% of the phones sold in Q4 2018 were phablets.
  • Expanding RAM: 2GB had been the RAM preference in the Canada market till Q3 2018. But now we see that sales for phones with 3GB and 4GB RAM are increasing. The demand for more RAM demand is because apps and games are demanding larger memory and RAM.
  • Dominant offline market: People in Canada prefer buying phones from the stores rather than ordering online. When asked, over 55% expressed a preference for visiting stores (mainly operator stores) to purchase phones.

Seeing the potential of the market, new players have entered. Chinese brands like Xiaomi and Vivo are yet to get significant traction in the market. Aggressive pricing, tying up with the right operators, and targeting the right segment can help them gain market share and challenge the incumbents.

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