Competition will limit Canadian growth in telecom, IT services

Published: June 21st, 2010

Both Canada’s telecommunications and information technology services industries came out of the recession in decent shape, with strong consumer demand for new wireless handhelds and business desire to drive IT efficiency sustaining demand. However, the Conference Board of Canada reports weak price increases and rising costs, fueled by increased competition from new competitors, will limit profit growth going forward.

In its spring 2010 forecast for the industries, the Conference Board of Canada said that new data services and offerings and the increasing cultural change around handheld computing becoming more a part of our daily lives will help drive wireless growth, counter-balanced by increased completion from new entrants which will keep prices competitive. In the IT services industry, the long-delayed IT refresh cycle and the increasing demand for IT services and products from the health care industry will drive growth, while moderating corporate profitability may hamper business will for IT investment.

“New products, such as smartphones and digital TV, and the growing use of wireless services helped the telecom industry through the recession,” said Maxim Armstrong, an economist for the Conference Board of Canada. “As the economy rebounds growth in demand for industry services will accelerate. However, competition will limit price increases for both telecoms and computer services firms. New entrants into the Canadian wireless market are also forcing telephone service providers to control escalating costs and make investments in new technologies.”

In the telecom space, the forecast indicates telecom profits surpassed $7 billion in 2009, just above 2008 levels. Anticipating a five per cent increase in costs this year tanks to rising interest rates and stronger wage increases, the report forecasts a dip in profits to $6.7 billion in 2010, with a return to the 2009 level by 2013.

“The arrival of the new entrants is therefore forcing existing providers to lower their prices and diversify the kind of services they offer,” says the report. “In fact, existing wireless carriers had already begun to adjust their product offerings and packages before the new entrants arrived. As consumers change their preferences and the way they use cellphones, companies have to adjust the types of services they offer in order to meet the changing demands.”

The report also sees the computer systems design industry (including software and website development and management and computer-related support services) facing cost increases this year which will not be compensated for by revenue increases, resulting in a third consecutive yearly decline, to $1.3 billion.

“There are actually many examples of innovations that have been developed for health-care providers and used in other countries that have yet to be fully implemented in Canada-such as telemedicine, electronic medical records, and a multitude of applications compatible with smart phones and other similar devices. For several reasons (including security, privacy, reliability, or regulatory issues), Canadian health-care providers are taking longer to integrate these tools into their everyday practice,” says the report. “Nonetheless, this creates a whole new line of business-one with huge potential for computer systems designers.”

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