The Canadian Cellular Telephone Industry: Birth, Evolution and Prospects

1
The Canadian Cellular Telephone Industry Birth,
Evolution and Prospects

• International Communications Forecasting
  Conference
• June 10, 1998
• St. Louis , Missouri
• (speaker notes accompany each slide)

2
Background

• 1985 to 1996
• 2 national licensees
• Late 1996
• Third licensee
• Late 1997
• Fourth licensee
• 4 digital
• Current industry structure
• Four national licensees
• One affiliated with vertically integrated
  incumbent wireline telco

3
Subscribers
Millions of Subscribers (Line)
Annual Growth Rate (Bar)

Source Statistics Canada 1997 estimates based
on public reports.
4
Subscribers
Millions of Subscribers (Line)
Annual Growth Rate (Bar)
106
70
69

Source Statistics Canada 1997 estimates based
on public reports.
5
Subscriber Growth - The Past
Net subscriber growth (net subscriber additions
as a of population)
Source Statistics Canada, public reports
6
Subscriber Growth - The Past
Subscribers per 1000 inhabitants
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Public Network Europe
7
Statistics Canada Household Surveys

• Household Facilities and Equipment Survey
• Spring of 1996
• 34,000 households
• Does this household have a cellular phone for
  personal use (exclude cordless phones exclude
  cellular phones provided by employers)?
• Results used to estimate incidence across
  Canadas 11,580,000 households.

8
Statistics Canada Household Surveys

• 1996 Penetration Rate
• 14.1 1,611,000 households
• 1997 Penetration Rate
• 18.6 2,152,000 households
• A year-over-year increase of 33.

9
Statistics Canada Household Surveys
Penetration rates by income quartiles

Quartile
18,180 to 33,702
33,702 to 54,585
0 to 18,180
54,585 and up
Source Statistics Canada
10
Statistics Canada Household Surveys
Number of subscribing households by income
quartiles, Spring 1996, 1997
(000s)
Growth rate
Quartile
Source Statistics Canada

• Upper quartiles contributed more in terms of
  absolute number to growth
• Lower quartiles grew faster though - indication
  of increased affordability

11
Statistics Canada Household Surveys
Penetration rates by education of household head
and income quartiles, 1997
of Households
Quartile
Source Statistics Canada
- There does not appear to be a relationship
between education (among those with at least high
school) and the penetration rate except in the
bottom income quartile (Paul Dickinson 1998)
12
Statistics Canada Household Surveys

• Penetration rates also correlated with other
  demographic variables, including age of household
  head and family type
• 15 Census Metropolitan Areas (CMAs) vs. other
  census areas
• CMA Non-CMA
• Total households 6,552,000 5,058,000
• Penetration rate 20.7 15.8
• Cellular hhlds, 1996 1,004,000 607,000
• Cellular hhlds, 1997 1,352,000 800,000
• Growth rate (Spring 96 to 97) 35
  32

Source Statistics Canada
13
Statistics Canada Household Surveys

• 1996 Family Expenditure Survey
• Sample of 10,420 households
• Approximately 500 different items.

• Cellular services added in 1996
• Internet services, enhanced (telephone) service
  charges.
• 14.5 of households (1,581,000 households)
  reported cellular expenditures.
• Across these households, average expenditure
  380
• 55 for each and every Canadian household.
• Household segment was worth about 605 million in
  1996
• 30 of overall market (2.0 billion)

14
Household Communications Bundle
Average annual expenditure across households
reporting non-zero expenditures
Annual expenditure for each and every household
Basic charge (97.8) 227 230 Enhanced
service charges (36.2) 28
78 Other local charges (16.4) 9
68 Long distance toll charges (88.4) 320
363 Cellular services (14.5) 55
381 Internet services (7.4) 12
157 Cablevision (69.1) 212 306
Communications bundle 863 1573
Pre-tax household income 2.0
3.7 (42,878)
15
Average expenditure within expenditure quartiles
Average annual expenditure on cellular services
Quartile
Source Statistics Canada

• Top 25 spend an average of 834 - more than
  twice the overall average.
• Three lower quartiles - spend less than the
  average.
• Top quartile households - similar to the typical
  cellular households in terms of demographic
  characteristics except they earn more and are
  more likely to have two full-time earners.

16
Average expenditure by income quartiles
Average annual expenditure on cellular services
Quartile
19,500 to 35,747
35,747 to 56,667
0 to 19,500
56,667 and up
Source Statistics Canada

• The bottom income quartile actually spends more
  than the second quartile.
• Spending in each quartile stays close to the
  mean of all quartiles (380).

17
Household Cellular Spending
Bottom (0 to 23,400)
2nd (23,400 to 42,896)
3rd (42,896 to 68,000)
Top (68,000 and up)
All
Cellular services 300
300 300 300
300
Avg. pre-tax household income
12,534 27,546 45,473 89,958
42,878
Avg. voluntary consumption 2,651
8,844 16,485 35,126
15,777
Percent of avg. voluntary consumption
11.3 3.4 1.8 0.9
1.9

• Top quartile distorted by very high income
  households

• Analysis of middle quartiles indicates that, on
  average, the third quartile finds it almost twice
  as easy to afford cellular service

18
S-Curve Pattern of Product Adoption

• Rule of Thumb (James K. Shaw 1996)
• 10 household penetration after t years
• 90 household penetration after 2t years
• 1996 - 14.1
• 1997 - 18.6
• 1995 household penetration ? 10 (conservative
  estimate)
• t ? 10 years
• 90 penetration by 2005
• 11.7 million households (out of estimated 13
  million in 2005)
• Net growth of 9.5 million households

19
Subscriber Growth - The Future?
Annual growth rate ()
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Statistics Finland Public Network
Europe
20
Subscriber Growth - The Future?
Annual growth rate ()
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Statistics Finland Public Network
Europe
21
Subscriber Growth - The Future?

• By accounting for the fact that Finland
  introduced 2nd generation cellular four years
  ahead of North America, Finlands subscriber
  growth rate may tell us something about the
  potential growth of the Canadian market in the
  future

Annual growth rate ()
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Statistics Finland Public Network
Europe
22
Subscriber Growth - The Future?

• By accounting for the fact that Finland
  introduced 2nd generation cellular four years
  ahead of North America, Finlands subscriber
  growth rate may tell us something about the
  potential growth of the Canadian market in the
  future

Annual growth rate ()
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Statistics Finland Public Network
Europe
23
Subscriber Growth - The Future?

• By accounting for the fact that Finland
  introduced 2nd generation cellular four years
  ahead of North America, Finlands subscriber
  growth rate may tell us something about the
  potential growth of the Canadian market in the
  future

Annual growth rate ()
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Statistics Finland Public Network
Europe
24
Subscriber Growth - The Future?

• By accounting for the fact that Finland
  introduced 2nd generation cellular four years
  ahead of North America, Finlands subscriber
  growth rate may tell us something about the
  potential growth of the Canadian market in the
  future

Annual growth rate ()
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Statistics Finland Public Network
Europe
25
Subscriber Growth - The Future?

• By accounting for the fact that Finland
  introduced 2nd generation cellular four years
  ahead of North America, Finlands subscriber
  growth rate may tell us something about the
  potential growth of the Canadian market in the
  future

Annual growth rate ()
Introduction of digital cellular Finland, 1993,
7.6 subs per 100, GSM ? 5 Canada, 1997, 9.8 subs
per 100, PCS ? 5
Source Statistics Canada Cellular
Telecommunications Industry Association (U.S.)
Ministry of Transport and Communications,
Finland Statistics Finland Public Network
Europe