Telecom & Media Conference 2023 Key Takeaways

TD Securities was delighted to host our 25th annual Communications & Media conference, featuring a deep line-up of industry-leading executives. The sector continues to evolve rapidly with transformational M&A activity and regulatory developments shaping the landscape for years to come. Speakers provided unique insights into their outlooks for their businesses and sector in a series of insightful discussions. On behalf of the entire TD Communications & Media team, a big thank you to all our corporate and institutional clients for making this another successful C&M Conference.

Rod Davies, Managing Director, Head of Communications & Media – Canada, Investment Banking, TD Securities

The recent mergers and acquisitions across the telecommunications industry raised many questions about the subscriber growth and profitability. How will a strong fourth player in the national market affect existing ARPU and subscriber base for the incumbent telecoms? Recent pricing moves could be a response to increased competition, an effort to upsell existing flanker-brand subscribers or simply a short-term effort to appease the ISED.

Attendees at this year's Telecom & Media conference heard first-hand from these industry leaders. Senior executives from new entrants and media corporations were also invited to speak. We believe the commentary from all players pointed to a healthy balance between volume/subscriber growth and pricing/profitability. Here are some of the key takeaways we found that stood out when considering industry movements over the next year.

High confidence in subscriber retention

The incumbents have a good moat around their existing subscribers to mitigate churn. All three seem quite confident that they can defend their existing customers by using:

• Bundling: We estimate that less than 25% of wireless subscribers take only wireless service with no bundle in the regions where bundles exist for each carrier.
• Some corporate plans: Standalone wireless subscribers in Alberta and B.C. would be on enterprise or government bulk contracts that should not be vulnerable.
• Superior 5G network coverage: Not many high-end customers are going to be willing to switch to a regional carrier to save a few dollars.

Canadian wireless industry growth remains robust

The carriers generally agreed that the population growth of Canada, including immigration, should sustain market growth near the level that was achieved LTM. Unlike some other markets such as the U.S., this should mean that there is room for both incumbents and new entrants to continue to grow.

The key question then becomes if the new entrant is satisfied with this pacing of growth, as opposed to an appetite for even faster subscriber growth via taking material existing customers away from the incumbents. However, messaging from the largest new entrant leads us to believe that a piece of this ~1.6 million subscriber pie is good enough for it.

It was also stated that incremental marketing initiatives would be staged in gradually over time as they complete various technical upgrades such as 5G network coverage. There was no indication that highly disruptive tactics were being considered to drive massive sub-growth and a big uptick in churn for the incumbents.

Premium wireless pricing moves might not be indicative of sustained aggression

We were pleased to hear some competitors signal that there is no reason to overreact to recent wireless pricing changes ($65 for main brand and $39 flanker). The promotional rates could simply be;

1. temporary to appease ISED/regulators; and
2. a short-term move to signal to the new entrant that they need to tread carefully and balance profitability.

One incumbent leading this pricing structure expressed that the reason for the new $65 plan is an attempt to upsell more mid-tier flanker subs to its premium brand without such a big step-up required. The emphasis over the past 18 months for its premium brand (typically $85 for 5G speeds), versus its 4G-only flanker brand plans (generally $45), left a big white space in the market. These $65 plans pose modest ARPU risk for unlimited subs because the average monthly rate for this cohort was previously under $70 due to long-term subscriptions on older plans and frequent promotions in the market.

Wireline/broadband profitability in the west

We have written numerous times in the past that the reaction in wireline/broadband is the toughest thing to predict following this year's big acquisition. Customer service IT systems are on track to cutover on July 1, so we were pleased to hear that ~140k Internet sub-adds per year from the west's dominant telecom might not be the best path to optimal profitability. As we have seen in wireless recently, industry leadership in revenue growth and lifetime value per subscriber can occur without being number one on subscriber loading.

MVNO opportunity

Another Canadian corporation looking to make use of Canada's new Mobile Virtual Network Operator (MVNO) regulations emphasized that it might have more than seven years to build a network, has many partnership options, and it can be selective in where to build as wholesale subscriber traffic grows.