Immigration spurring telecom subscriber growth but ongoing investments needed: report

Canada’s immigration influx is spurring subscriber growth for the country’s four biggest telecom providers, but significant investments in network infrastructure are needed to meet rising demand for services, says a report released Thursday.

Credit-rating agency Morningstar DBRS said Canada’s “ambitious” plan to welcome around 500,000 immigrants per year until 2026 will continue to bring new customers for the major carriers in the near term, but subscriber growth could be challenged beyond that if immigration and economic growth slow.

“For telecommunications incumbents, such as Bell Canada, Telus Corp., Rogers Communications Inc. and Videotron Ltd., international migration was a material contributing factor to strong subscriber growth in the 2022—23 period as more than a million immigrants entered Canada,” said the report by Vikas Munjal, vice-president of diversified industries for the agency.

“That said, changes in policy or regulation, overall economic conditions, including a reduced or slower immigration flow or emigration given the ongoing cost of living crisis, as well as a maturing wireless market will likely challenge subscriber growth.”

Those factors “could considerably intensify competition” in the sector or raise the costs incurred by carriers to acquire or retain new subscribers, according to the report.

Mobile subscribers grew from 33.6 million to an estimated 35.4 million in Canada between 2022 and 2023, it said.

Meanwhile, the number of residential internet subscriptions rose by 5.6 per cent in 2022. The report highlighted that Canada’s three largest telecoms added approximately 112,000 broadband internet customers combined in the fourth quarter of 2023, which was flat year-over-year but 3.6 per cent higher than the same period of 2021.

Ottawa said last fall it plans to level out the number of new permanent residents to Canada in 2026 amid a crunch on housing and other services after surpassing records for the total admitted per year in both 2021 and 2022.

Immigration Minister Marc Miller has also announced new limits to Canada’s international student program, including a 35-per cent reduction in the number of study permits it issues this year.

Rogers CEO Tony Staffieri said earlier this month on the company’s fourth-quarter earnings call that his company does “extremely well” in attracting customers who are new to Canada. He added there “will certainly be an impact” from the international student cap, but the company predicts it will be a small one when measuring overall market growth.

Rogers estimates Canada’s wireless market will grow by at least four per cent in 2024 after exceeding five per cent growth last year.

Quebecor Inc. CEO Pierre Karl Péladeau, whose company owns Videotron, also acknowledged Thursday that “we’re certainly helped by immigration” as it seeks to grow its subscriber base across Canada amid ongoing expansion plans.

The Morningstar report said growth in mobile internet users and a shift to hybrid work models are leading to exponential growth of demand for data and bandwidth.

Over the past five years, the Canadian telecom sector has spent an annual average of $12.1 billion on network infrastructure, according to the report, which noted the major players effectively offer 4G LTE coverage to 99 per cent of the population.

“To support this increased demand as well as support the transition to higher speed networks and 5G technologies, telecom players will have to continue to make significant investments in technology and fibre network infrastructure,” it said.

That warning comes as Bell has announced plans to scale back fibre network investments by $1.1 billion by 2025 in response to the regulatory environment.

In a statement, the Canadian Telecommunications Association touted “significant investments to deliver world-class networks for our country, which have proven to be resilient even as usage has grown dramatically over the past several years.”

“Continued investments are required to keep reaching more Canadians, to improve capacity as Canadians continue to use more data, to strengthen infrastructure in the face of the increasing frequency of severe weather events, and to enhance network capabilities to support new use cases that will enable Canadian consumers, businesses and governments to further participate in the digital economy,” said spokesman Nick Kyonka.

The CRTC has an ongoing consultation on internet competition. Last week, the commission held a five-day hearing gauging feedback on whether it should allow smaller internet providers to use rivals’ fibre networks for a fee in order to offer their services to customers.

Bell, which vehemently opposes the proposal, urged the CRTC to implement conditions such as caps on eligible speeds and initial access restrictions if the regulator goes forth with mandating wholesale internet access.

It announced the cuts last fall in response to a ruling by the CRTC that implemented such rules on a temporary basis in Ontario and Quebec starting this May. Calling the commission’s direction on the matter “predetermined,” it said earlier this month the rules diminish the business case for it to invest.

Rogers and Telus said they are awaiting the CRTC’s full decision before determining any changes to their spending plans.

Péladeau said Thursday he doesn’t expect major changes to Quebecor’s capital expenditure levels in 2024.

“We consider ourselves disciplined and we will continue to do so,” he told analysts as Quebecor reported its own fourth quarter earnings.

“We make sure that what we spend is properly spent and … for the purpose of servicing our customers better and wider.”

This report by The Canadian Press was first published Feb. 22, 2024.

Companies in this story: (TSX:BCE, TSX:RCI.B, TSX:T, TSX:QBR.B)

Sammy Hudes, The Canadian Press