DBRS Study Focuses on Wireless Industry in Canada

DBRS has today released a study on the Canadian wireless industry, a sector that has witnessed considerable change, both regulatory and technological, in recent years. The study focuses on the new competitive landscape in Canada and how shifting trends such as wireless-for-wireline substitution may affect the business and financial risk profiles of the country’s incumbent wireless carriers.

While the new competition is expected to put some pressure on the strong EBITDA margins of the national incumbent carriers in the early part of the decade, the degree of this pressure will likely depend on how successful the new market entrants are in attracting subscribers and how effectively the incumbent carriers put in place measures to adapt their businesses to the new market reality.

DBRS has forecast that the wireless industry will grow to over 30 million subscribers by the end of 2015 (from the current 22.9 million), with the three national incumbents’ share falling from 96% today to roughly the 88% level as the new entrants achieve market share of between 7% and 10%. However, with 7.7 million new subscribers added over this six-year period, DBRS believes that both the incumbents and new entrants will benefit from reasonable subscriber growth. This should take penetration levels to roughly 80% of the Canadian population from 67% today. “While there will be more players at the table,” says Chris Diceman, Senior Vice President at DBRS, “The table itself is expected to grow at a rate of 5% per year to 2015.”

“Those carriers that are best at adapting to competitive and technological changes will not merely survive, but thrive,” he adds. “There is plenty of room for growth left in the Canadian wireless market over the medium term. With their national networks and track records of innovation, it will likely be the incumbents that push these initiatives, while the new entrants try to scale their businesses from a significantly different cost base.”

The study also cautions that any game-changing alterations to the Canadian wireless landscape – as a result of new competition, technology or regulatory initiatives – could have an impact on the incumbent wireless carriers’ businesses, possibly jeopardizing the stability of ratings. “It is still too early to gauge the full impact of recent changes,” says Mr. Diceman. “When the dust settles in the medium term, we should see the wireless market reveal a new competitive equilibrium.”