2012-05-20 13:57:18 - New Fixed Networks market report from Business Monitor International: "Canada Telecommunications Report Q2 2012"

Canadian telecommunications market continues to grow in Q411, but at a slower rate than expected. The market added356,000 net additions this quarter, down from 443,000 in Q311. The reason for this drop, BMI believes, is the increased focus on LTE subscribers. Operators, as a result, have experienced less demand for prepaid services, which has led to lower net additions.

Newer entrants to the market continue to report growth, and new rules surrounding foreign ownership may lead to such players gaining greater market share in future. The Canadian government announced plans in March 2012 to loosen restrictions and allow foreign firms to take up to 100% control of carriers. Currently, foreign ownership of telecoms operators in Canada is limited to 46.7%. Although

only firms with less than 10% market share are subject to the new laws, BMI believes foreign investment and expertise will play a key role in helping these smaller players expand. If, as the result of foreign investment, they grow over the 10% limit, foreign ownership limits would not apply.


Full Report Details at
- www.fastmr.com/prod/384815_canada_telecommunications_report_q2_2 ..


The CRTC also announced plans to ensure smaller players have access to the most desirable spectrum in the upcoming auctions. BMI believes these policies will facilitate improvements in the competitive environment, where three players currently dominate 93% of the market. The regulator intends to auction spectrum in the 700MHz band in 2012 followed by spectrum in the 2,500MHz band, and the three largest players will not be allowed to acquire more than 25% of these most desirable tranches of spectrum. The combination of foreign expertise and premium spectrum will provide an advantage for smaller players, and BMI believes that players such as MTS Mobility, Wind and SaskTel may be attractive acquisition targets for foreign players. Further, companies that win two or more blocks in the 700MHz band must guarantee services to rural areas within a certain timeframe.

BMI welcome these moves as, in a vast country such as Canada, rural areas are often underserved due to the expense of roll-out. Services in the 700MHz band can penetrate buildings more effectively and work better over longer distances, therefore reducing network operating costs for carriers. It also means it is better suited in rural areas, where the frequency is required to cover a larger amount of space. As a result, we believe the new regulations are likely to improve services for Canadians and lower prices. We expect the smaller players to grow strongly over the period to 2016 and to gain market share from Bell, Telus and Rogers.

In other news this quarter, Bell Canada revealed plans to acquire Astral Media for CAD3.38bn. The transaction will see Bell take ownership of 100% of Astral's non-voting shares, leaving Bell well positioned to cater to growing demand for mobile content. The proposed takeover will integrate Astral's operations with Bell Media, which currently controls CTV, Canada's oldest and largest private broadcast TV network, among other broadcasting content.

In particular, the purchase will put Bell in a stronger position in the francophone Canadian markets, as Astral owns eight leading French channels. In these markets, Bell faces strong rivalry from Quebecor, parent of Videotron, which is a formidable competitor in Quebec. BMI believes the Astral deal will considerably improve Bell's competitive position in these markets and allow it to gain a greater foothold in these eastern Canadian regions.

However, the deal has to win regulatory approval, which BMI believes could prove a challenge. If allowed to pass, Bell would be violating ownership rules surrounding how many radio stations a company can own in particular regions. Further, BMI believes the CRTC is also likely to want to maintain a healthy competitive environment in the mobile content market and the acquisition of Astral by Bell would not fit with this strategy as it places too much of the broadcasting market within Bell's hands.

We have downgraded our forecasts for the mobile and fixed line sectors this quarter, as growth has been slower than expected in the former and declines greater than expected in the latter. We now expect mobile penetration to reach 86.4% by 2016 and fixed line to reach 37.89%. In the broadband sector, we believe there will be 34.7mn broadband subscribers by the end of 2016, or 96.63% of the population. This high number includes fixed and broadband subscriptions.

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