New Competition “Slightly” Lowers Industry Profit Margins

by Jordan Richardson on June 15, 2010

A Conference Board of Canada report released Monday reveals that new competition has slightly lowered the profit margins at Canada’s major carriers this year.

Canada’s Big Three telecommunications carriers – Rogers, Telus and Bell – have invested in infrastructure and have remained profitable even throughout the recession, but they now face what is being called a “crowding market” and this is pushing their revenue levels down. The report says that the ability of the Big Three to “price for healthy profit margins remains limited.”

The report reveals that costs will continue to grow strongly while profits are expected to continue their decline, at least in the case of Canada’s oligopoly. “The industry is going through a transition phase in which the rules and strategies of business are gradually changing,” say the report’s authors in the Spring Outlook.

The Ottawa-based think tank reinforced the notion that the telecom and technology sectors did relatively well in the recession period. The growing use of products created and marketed by the sector has helped profits stay steady for the most part and the incoming competition is a sign of the sector’s overall growth.

The sector as a whole saw modest profit growth last year, making earnings of $7 billion before taxes. With rising costs for such “trivialities” as wage hikes and technological investment, it’s forecasted that the industry will experience a drop to around $6.7 billion.

The telecommunications companies are expected to see a boost in profits once things level off in 2011, however. It’s expected that things will take some time to return to the glory days of 2009 peak profits, though, as industry changes and regulatory difficulties will continue to force providers to control skyrocketing costs as they continue attempt investment in new tech.

If anything is clear from the report, it’s that data is still the path to the future in terms of profits. All companies saw data growth, with Rogers seeing the most growth.

The problem, say some analysts, is that it could be difficult to recoup the losses from traditional wireless service and landlines from the data usage pool. If this becomes more of a problem, expect data rates to go up to cover the bases.

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Written by: Jordan Richardson. www.digitcom.ca >. Follow TheTelecomBlog.com > by: RSS >, Twitter >, Identi.ca >, or Friendfeed >

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