Canadian mobile network operators may be considered large domestically, but their international peers and suppliers are much larger. On average, the leading telcos in the G7, along with those in South Korea and Australia, generate 3.5 times more revenue than Rogers, Bell and Telus. The large international suppliers generate nearly 9 times more revenue.
Why does this matter? It matters because the wireless business is about scale and this becomes even more important in the 5G world.
Scale Matters
A recent report from PWC, “The evolution of Canada’s telecom industry and the growing digital economy”, highlights the importance of scale when it comes to deploying 5G.
In the report, PWC notes that Canadian operators spend a higher proportion of their revenue on capital investments than many of their counterparts in other countries. For example, the capital expenditure to revenue ratio of Canadian operators averages 18%, which is on average five per cent higher than operators in the US and Australia.
Furthermore, as relatively small players in a global telecoms market, Canadian operators have less ability to negotiate better prices with telecoms equipment suppliers.
When it comes to building 5G networks, which are estimated to cost between 23% and 71% more than 4G networks, a lack of scale coupled with high costs directly impact Canadian operators’ ability to invest in new 5G¹ technologies.
Value Sharing and Impact on Investment
While operators are responsible for investing billions of dollars in the digital infrastructure that underpins the 5G ecosystem, they stand to capture a fraction of the total economic value created by the technology.
According to PWC, by 2026 providers like GE and ABB will claim 45% of the value, software providers like Amazon and Google 29%, technology companies like IBM will claim 34%, and service providers like Bell, Telus, and Rogers 11%.
Other jurisdictions are taking note. The CEOs of the leading network operators in Europe urged their lawmakers to consider a model by which large global technology companies contribute to the cost of building networks that will benefit their businesses considerably.²
“Large and increasing part of network traffic is generated and monetized by big tech platforms, but it requires continuous, intensive network investment and planning by the telecommunications sector. This model – which enables EU citizens to enjoy the fruits of the digital transformation – can only be sustainable if such big tech platforms also contribute fairly to network costs. Furthermore, we must ensure that new industrial strategies allow European players – including telcos – to compete successfully in global data spaces, so we can develop a European data economy that is built on true European values.”
Trending: Industry Consolidation
Many countries around the world have recognised the significant economic and social benefits that 5G offers and are allowing their operators to scale in order to deploy the technology as quickly as possible.
PWC states that in 2020, the value of consolidation activity in the telecommunications industry was $263 Billion, an increase of $195 Billion from 2019. In the United States, the third and fourth largest mobile operators T-Mobile and Sprint have merged. More recently, in South East Asia, the number of telecom operators have gone from 3 to 2 in Thailand, 4 to 3 in Indonesia, and 3 to 2 in Malaysia³. In India, a country of nearly 1.4 Billion, the government has taken a 36% stake in Vodafone Idea to prevent its collapse⁴.
Canada’s success in the global digital economy depends on the quality and reach of its digital infrastructure. When it comes to 5G, many other countries are already ahead and starting to reap the benefits. To avoid being left behind, Canada urgently needs companies that have the scale and financial means to invest billions of dollars in digital infrastructure that will be an economic lifeline for decades to come.
Charit Katoch, Director Public Policy
¹ https://www.pwc.com/ca/en/communications/publications/5g-the-digital-economy-and-canadas-global-competitiveness.pdf
² https://etno.eu/news/all-news/717-ceo-statement-2021.html
³ https://www.ft.com/content/526743e5-ce7d-40c8-9b31-7308d529d06b
⁴ https://www.ft.com/content/055e82b2-fae3-4bcc-9b89-fc6ee64f3b68