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Competitive pressures limit profit growth in telecommunications industry

Over the next four years, Canada's telecommunications industry as a whole will grow at a modest pace.

May 28, 2008  

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Over the next four years, Canada’s telecommunications industry as a whole will grow at a modest pace.

However, this outlook disguises significant shifts in market share within segments of the industry, according to the Conference Board’s Canadian Industrial Outlook: Canada’s Telecommunications Industry – Spring 2008.

“Fierce competitive pressures in growing segments of the telecommunications industry will limit price increases. This increasing competition benefits consumers-but will constrain profit growth for telecommunications companies,” said Michael Burt, Associate Director, Industrial Outlook.

The number of wired phone lines is steadily declining, but increasing demand for wireless services will sustain overall growth in the industry. The May 2008 spectrum auction for wireless services will bring new competitors into the market, which will limit the industry’s ability to raise prices.

Prices are forecast to grow at less than 1% annually through 2011.

In addition to weak pricing power for the industry, rising costs will be another factor limiting profitability. For example, labour shortages in the IT sector are driving wage increases.

As a result, after posting double-digit profit growth in each of the past two years, industry profits are expected to grow by just 1.1% in 2008, to $6.8 billion.

Profits will remain flat in 2009 and will grow modestly each year between 2010 and 2012.