Canada’s Telcos Prove Analysts Wrong With Surge of New Users

  • BCE, Rogers, Telus almost doubled estimates for subscribers
  • Canada has fewer wireless users per capita than U.S., Europe

BCE Inc., Rogers Communications Inc. and Telus Corp. are known as the Big Three for a reason: Together they control 90 percent of the wireless market in Canada. In the second quarter they proved there’s still plenty more customers to sign up.

The three nationwide carriers added almost 196,000 customers in the quarter, blowing past analysts’ projection by almost 80,000, the biggest beat in at least two years, according to available data compiled by Bloomberg. A year earlier, the Big Three signed 161,033 new customers, compared with analysts’ estimates for 119,600.

While executives couldn’t cite reasons for the surge in subscriber growth, the quarterly results challenge the view that growth has stagnated. Canadians still own far fewer mobile phones compared with those in other countries, new users are being found among both older people and children and more people are dumping their landlines for mobile phones exclusively.

“Wireless penetration in Canada is quite far behind a lot of other developed-world countries,” Lawrence Surtees, an analyst with research firm IDC, said in a phone interview.

Only 82 percent of Canadians had a mobile phone or tablet subscription at the end of 2015, compared with 115 percent in the U.S., meaning some people subscribed to more than one line, according to industry trade groups. In countries like Italy or Finland, the number can reach 200 percent, Surtees said.

‘Unusual Quarter’

The quarterly subscriber growth could be the result of consumers switching from prepaid accounts -- which must be paid for as they go -- to more lucrative postpaid contracts with bigger data plans.

Another reason could be more Canadians ditching their landline phones for wireless plans, Greg MacDonald, an analyst with Macquarie Group Ltd., said in a phone interview. Telus, Rogers and BCE also all improved their ability to retain customers, MacDonald said.

Telus Chief Executive Officer Darren Entwistle cited the company’s focus on value and customer service as the reason it added 61,000 wireless users instead of the 37,500  estimated by analysts.

Rogers and BCE, meanwhile, increased their promotional spending, which may have drawn in cost-conscious customers. Rogers, for instance, offers a free iPhone 6 to people signing up for two-year plans.

Still, all these reasons still don’t fully explain how the Street got the numbers so wrong, MacDonald said. The first half of the year tends to be weaker than the second half, which includes the back-to-school and holiday seasons, he noted. A new iPhone is also expected in the third quarter, which usually prompts many consumers to wait to renew their plans until the new phone is released, he said.

“I don’t see anything obvious,” he said. “It could just be an unusual quarter.”

To be sure, the Big Three still face a competitive threat. Calgary-based cable and internet provider Shaw Communications Inc. has entered the market with a C$1.6 billion ($1.2 billion) purchase of Wind Mobile, putting financial firepower behind a smaller carrier that undercuts the Big Three’s prices.

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