For reasons that remain unfathomable to this writer, the idea of a top 10 list remains an item of fascination for both analysts and readers alike. So without further ado, here's the top 10 major trends and themes for the Canadian telecommunications industry in 2010, courtesy of Phillip Huang and the good folks at UBS.
1. The Canadian market is ripe for wireless substitution: Only about 8% of Canadian households have completely wireless phone service, compared with about 20% in the United States. This should change with more unlimited voice plans, with BCE Inc. at the greatest risk as it has the most residential lines.
2. Acceleration in wireless data penetration: Data penetration growth will accelerate to 7%-10% this year on faster connection speeds and cheaper data plans.
3. Increasing prominence for prepaid service: Entry of new wireless players will be a catalyst for more attractive prepaid plans.
4. Declining wireless margins: Margins are expected to contract for the three incumbents (Rogers, Telus, BCE), driven by their focus on smartphones and the growing mix of lower revenue subscribers.
5. New entrants face presure to consolidate: Going up against the big three will not be easy for new wireless players, so consolidation might happen sooner rather than later. Shaw is also in a good position to acquire spectrum from new entrants.
6. TV competition ramping up: Look for more competition in urban markets this year, as both BCE and Telus shift their attention to new technologies.
7. Enterprise to recover in 2010: Look for a return to growth as the economy recovers.
8. Cost reductions to continue: Growth is slownig and margins are contracting, so there will be cost cutting in 2010.
9. More stable capital spending: Incumbents Bell and Telus have spent significant amounts in the past two years to build HSPA networks for 3G phones, and with those projects nearing completion there will likely be less capital spending this year.
10. Greater focus on returning capital: Rogers is expected to have the most rapid dividend growth and share repurchase program over the next few years.
Quebecor is Mr. Huang's industry top pick, while Rogers, Telus and Cogeco Cable have Outperform ratings. He is neutral on BCE, Bell Aliant, and MTS Allstream.