Canadian Radio-television and Telecommunications Commission
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3.0 The Communications service industry
3.1 Financial overview
This section provides a broad overview of the financial performance of the broadcasting and telecommunications industries in Canada (the Canadian communications industry) and briefly examines how convergence is enabling industry participants to offer communications services outside of their traditional core services. The financial performance of individual sectors within broadcasting and telecommunications is found in sections 4 and 5.
Revenue trends
In 2008, communications industry revenues increased 6.0% to $54.3 billion. Broadcasting revenues increased by 7.3% to $14.0 billion, an increase that is about 1.3 times that of telecommunication revenues which increased by 5.5% to $40.3 billion. From 2004 to 2008, their revenues increased annually by 6.8% in the broadcasting industry and 4.7% in the telecommunications industry.
In 2008, communication industry revenues accounted for nearly 4.4% of Canada's gross domestic product (GDP).183 Broadcasting revenues accounted for approximately one quarter (26%) of that amount and telecommunications revenues accounted for approximately three quarters (74%).
A converging industry
Figure 3.1.6 illustrates the various types of players in the Canadian communications industry and how they deliver their service offerings to consumers. The deployment of high-capacity digital networks and the emergence of Internet protocol (IP) as the standard for data transmission and delivery have facilitated the carriage of multiple types of data on a single network; this has been a major enabler of network convergence. Today's unified data networks are capable of delivering all forms of information, be it voice, data, text, or video.
The capability and capacity of these underlying technologies and the regulatory response of allowing and encouraging competition in formerly non-competitive sectors have encouraged convergence. The blurring of the traditional distinction between a telecommunications company and a cable company is manifested by traditional telephony companies offering broadcasting services and cable companies adding telecommunications services, such as Internet and telephony, to their service offerings. Additionally, content providers are increasingly utilizing the Internet to distribute various forms of media and entertainment.
The rationalization of networks and services within the broadcasting industry is demonstrated by the increase of telecommunications service revenues as a share of total revenues (excluding mobile services) reported by the largest cable companies. In 2007, telecommunications service revenues represented approximately 42.5% of total cable company revenues, primarily due to increasing take-up of Internet access services and the inroads made by their residential telephone services. In 2008, telecommunications service revenues increased to 44.3% of total cable company revenues.
A similar magnitude in the proportion of broadcasting revenue to total revenue (excluding mobile services) was not exhibited by the incumbent telephone companies. Although their broadcasting revenues increased by approximately 16% in 2007, these revenues represented just 6.8% of their total wireline revenues. In 2008, this proportion increased to 7.8% as their broadcasting revenues increased 15.2%.
Cable companies, when compared to incumbent TSPs, have been more successful in "up-selling" telecommunications services to their customers.
Figure 3.1.7 represents the revenue makeup and relative revenue magnitude of eight communications companies that provide both broadcasting and telecommunications services. Each company is displayed by a bubble, the size of which represents the magnitude of its revenues. The position of the bubble indicates the extent of each company's telephony versus broadcasting revenues: the closer the bubble is to the "Broadcasting revenue share" axis, the more the company generates revenues through broadcasting activities; the closer the bubble is to the "Telecom revenue share" axis, the more the company generates revenues through telecom activities. Collectively, revenues of these companies account for over 80% of communications revenues.
Figure 3.1.8 sets out various regulatory considerations that must be addressed within a converging industry. From a regulatory perspective, the Commission will need to consider the impact of convergence as it applies to corporate structure, technology and customers. Within this framework lie a number of complex issues including, but not limited to, ownership, interconnection, universal access, affordability, and privacy.
Competition
Service convergence has led to increased competition and has encouraged innovation through offering multiple service bundles to consumers. TSPs providing local service are bundling long distance service with their local service offering. Others, such as the wireless service providers, offer friend and family plans.
In 2008, approximately 25% of residential accounts included service bundles that consisted of two or more of the following services: local, Internet, video, and wireless.184 This is relatively unchanged from the estimated 25% that was quoted in 2007. The extent to which residential customer accounts contained service bundles varied by TSP, ranging from 15% to in excess of 60%.
Statistical information - Financial overview
Table 3.1.1 Telecommunications and broadcasting revenues ($ billions)
| Growth | CAGR | |||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | 2007-2008 | 2004-2008 | ||||||
| Wireline | 24.0 | 23.5 | 23.4 | 23.7 | # | 24.3 | 2.5% | 0.3% | ||||
| Wireless | 9.5 | 11.0 | 12.7 | 14.5 | # | 16.0 | 10.4% | 14.0% | ||||
| Total telecommunications revenues | 33.5 | 34.5 | 36.1 | 38.2 | # | 40.3 | 5.5% | 4.7% | ||||
| Radio AM/FM | 1.2 | 1.3 | 1.4 | 1.5 | 1.6 | 5.2% | 6.5% | |||||
| Television | 4.5 | 4.7 | 5.0 | 5.3 | 5.5 | 4.4% | 5.0% | |||||
| BDU | 5.0 | 5.3 | 5.8 | 6.3 | 7.0 | 10.2% | 8.4% | |||||
| Total broadcasting revenues | 10.8 | 11.3 | 12.2 | 13.1 | 14.0 | 7.3% | 6.8% | |||||
| Total telecommunications and broadcasting revenues | 44.3 | 45.8 | 48.3 | 51.3 | # | 54.3 | 6.0% | 5.2% |
Source: CRTC data collection
Figure 3.1.1 Broadcasting and telecommunications annual revenue growth rates
Source: CRTC data collection
Table 3.1.2 Industry revenues, by type of provider ($ thousands)
| Growth | |||||||
| 2006 | 2007 | 2008 | 2007-2008 | ||||
| Incumbent TSPs | |||||||
| Telecommunications | 26,195.4 | 26,710.2 | # | 27,168.2 | 1.7% | ||
| Broadcasting distribution | 1,129.8 | 1,311.0 | 1,510.0 | 15.2% | |||
| Subtotal | 27,325.2 | 28,021.3 | # | 28,678.2 | 2.3% | ||
| Utility telcos and other TSPs | 343.6 | 488.1 | # | 626.2 | 28.3% | ||
| Resellers | 1,798.4 | 1,774.5 | # | 1,840.4 | 3.7% | ||
| Cable companies | |||||||
| Telecommunications | 7,731.9 | 9,231.6 | # | 10,671.1 | 15.6% | ||
| Broadcasting distribution | 4,661.5 | 4,998.3 | # | 5,443.4 | 8.9% | ||
| Subtotal | 12,393.4 | 14,229.9 | # | 16,114.5 | 13.2% | ||
| Broadcasting - Other entities | 6,448.1 | 6,758.1 | # | 7,066.3 | 4.6% | ||
| Total | 48,308.7 | 51,271.9 | # | 54,325.6 | 6.0% |
Source: CRTC data collection
Figure 3.1.2 Broadcasting and telecommunications revenues by type of provider (2008)
Source: CRTC data collection
Figure 3.1.3 Commercial broadcasting and telecommunications revenues (excluding non-programming and exempt services)
Source: CRTC data collection
Figure 3.1.4 BDU revenues, by service type
Source: CRTC data collection
Figure 3.1.5 BDU - EBITDA margins achieved from all services (programming, exempted, and non-programming services)
Source: CRTC data collection
Figure 3.1.6 Broadcasting and telecommunications operating platforms
Figure 3.1.7 Select Canadian communications companies revenue composition
Note:
(1) Bubbles represent estimated total telecommunications and broadcasting revenues in 2008.
Source: Company websites and other public annual reports
Figure 3.1.8 Regulatory considerations in a converging industry
