TORONTO, Dec 9 (Reuters) - Profits for Canada’s telecom industry will become flatter in the face of a worsening economy and new competition in the wireless market, according to a forecast on Tuesday by the Conference Board of Canada.
The outlook forecast annual combined profits of about C$7 billion ($5.6 billion) between 2008 and 2011.
The board had calculated that industry profits for 2006 and 2007 were C$5.6 billion and C$6.5 billion, respectively.
“The continued rapid rate of increase in demand for wireless services ... is driving growth in the telecommunications industry,” Michael Burt, associate director of the board’s industrial outlook, said in a statement.
“However, profit levels will remain flat over the next few years, due to fierce price competition, and a slowdown in demand growth due to the economic slowdown.”
Analysts have long warned that the companies’ historically fat wireless profits could come under pressure following the auction of wireless spectrum held earlier this year.
That’s because a number of potential new entrants, such as Globalive Communications Corp, have won licenses and plan to start offering service as early as next year.
While those new entrants could benefit consumers by offering lower prices, that would also be likely to erode the industry’s profit margins.
“This report is absolutely not a surprise,” independent industry analyst Carmi Levy said of the board’s outlook. “One would expect there to be a certain degree of flattening as a direct result of the suppressed economic activity.”
He also said the companies are slowing spending on next-generation technology because consumers are cutting back on spending on telecom services.
$1=$1.26 Canadian Reporting by Wojtek Dabrowski; editing by Rob Wilson