Over the past few years, the telecommunications sector has benefited from a growing customer base and higher consumer spending.
However, even with the expected revenue gains, industry analysts believe major telecommunications companies could be in for a rough year in 2017.
Previous measures to increase competition in the industry have not lowered prices or increased choice for consumers.
Lindsay Meredith, a professor with Simon Fraser University’s Beedie School of Business, said this likely means industry players will continue to face pressure from regulatory organizations and new competitors in addition to the challenges presented by changing customer demands and technology.
According to Meredith, package programming and rising prices are reasons why telecommunications customer demands are changing.
“The majors are getting squeezed on a lot of sides,” he said. “On the one side, they’re still getting nipped at by the small guys that might crop up. The other big factor is that technology has just created a massive change in consumer usage. I think that’s causing and will continue to cause a lot of uproar in the industry.”
Meredith said the major telecom companies usually deal with smaller competition by buying them out.
Kristelle Audet, senior economist with the Conference Board of Canada, questions how long this consolidation trend will continue.
Audet said the number of acquisitions is likely to drop in 2017 because the big players are running out of smaller businesses to buy.
Previous regulatory measures to open up competition have seemingly failed to increase customer choice within the telecom industry. As a result, Meredith said, Canada’s telecom companies will likely see increased pressure from the Canadian Radio-television and Telecommunications Commission (CRTC).
“This fight with the CRTC, I don’t think is over because consumers are still not very happy with the cable guys,” Meredith said.
The regulatory battle will continue, he said, because problems such as uncompetitive pricing and the ability to pick and choose individual channels have yet to be addressed.
“We face the highest rates in the world, and Canadians are tired of that. That creates an awful lot of animosity, and I think that’s what is going to keep the government fairly actively involved in this whole thing. That does not spell easy cruising for the cable guys.”
Meredith added that it’s just the tip of the iceberg. The larger problem shrouding the industry is the changing way people consume media and use technology. These changing consumer trends are also creating new kinds of competition – what Meredith calls “Internet-agile competitors” like Netflix (Nasdaq:NFLX), which uses the Internet to penetrate the cable market. All of these competing issues are likely to create problems for major industry players.
“The government regulation squeezes [telecom companies] on one hand, consumer dissatisfaction squeezes them again on the other, and then for good luck you’ve got all those Internet guys cruising in and trying to steal their lunch as well,” said Meredith.
“Finally, the nail in the coffin is the change in the way that everyday consumers use mobile devices and consume.”
