Voice over IP (VoIP) – which includes cable telephony services – and wireless are subjecting Canada’s $36-billion-a-year telecommunications services sector to intensifying competition on a scale not seen for over a century since the telephone supplanted the telegraph. Once dominant wireline telecom providers such as Bell Canada and MTS-Allstream might call them telecom’s evil twins as they find themselves under siege from those twin substitutes for traditional telephone service. Telecom is literally being torn inside-out.
Substitution of traditional local phone service by VoIP became a real and discernable factor in both Canadian and U.S. consumer telephony in the past year, resulting in the dramatic emergence of cable TV companies as a powerful second force in North American consumer telecom markets. Canadian cable companies ranked first and second among their North American peers in terms of cable telephony penetration (measured by percentage of cable homes passed and adjusted for launch timing): Groupe Vidéotron Ltée has achieved the fastest penetration of all major North American cable operators, followed by Rogers Communications Inc. (RCI).
There were more than one million non-incumbent VoIP phone customers in Canada – or five per cent of all local phone lines – at the end of 2006. A high proportion of those VoIP customers have also ported their local numbers to their VoIP service provider, which means those consumers are now using their local VoIP service as a replacement for local exchange services.
This greater-than-expected popularity of cable phone services in the first year of commercial service in Canada ranks as one of the most significant competitive developments in the telecom service sector in many years.
Linked to that development is the dramatic ascendancy of Rogers to a near-tie with Telus Corp. as the second–largest player in the Canadian telecom services market (measured by revenue) behind Bell Canada. Only a decade ago, RCI teetered on the brink of insolvency. Not even the indefatigable Ted Rogers could have imagined that RCI’s market capitalization – or total worth – would exceed the value of titan BCE; a feat attained earlier this year!
Then there’s the ‘Googazon’ complex of global Internet and IT vendors, including Google, Amazon, Microsoft, eBay and Yahoo, all of which are emerging players angling for a piece of the global $1.2-trillion (U.S.) telecommunications service pie.
But the growth of VoIP pales in comparison to the rise of wireless services, which broke through the $10-billion-a-year revenue threshold in Canada a year ago and accounted for an estimated one-third of total telecom spending in 2006. Wireless, which is now the largest segment of the Canadian telecommunications services market, is the future of the telecom franchise and is neglected at a service provider’s peril.
Our current projections of the Canadian wireless market give rise to a landmark inflection that we believe will occur by the end of this year when the number of wireless subscribers in Canada will overtake the number of wireline phone customers for the first time in this country. The arrival of wireless portability earlier this month may give a further impetus to the already burgeoning double-digit annual growth of wireless, particularly if it stimulates wireless substitution and encourages more Canadians to completely cut their wireline cords. IDC expects wireless penetration in Canada to rise to more than 23 million subscribers, or almost 69 per cent of Canada’s estimated population in 2010, compared to 18.5 million wireless users -– or 58 per cent of the population – at the end of 2006.
The degree to which traditional wireline voice services (local and long-distance) are mature and declining markets is further underscored by new wireless data services such as mobiTV and mobi-marketing. Spending on wireless data is expected to grow more than three times quicker than for wireless voice in the next five years. IDC forecasts wireless data revenue will increase to $3.1-billion in 2010 compared to $701-million in 2005.
All of which presents traditional players in the telecom services sector with new challenges, as well as opportunities. And we haven’t even mentioned the looming convergence of IP and wireless. For consumers, though, VoIP and wireless substitution may mean that telecom competition will no longer be viewed as an oxymoron and that sustained competition, finally, will no longer be a fragile rarity.
Lawrence Surtees is vice-president communications research & principal analyst at IDC Canada Ltd. in Toronto and can be reached at email@example.com.