MONTREAL - Cellphones have become so popular in Canada that they are about to eclipse the use of traditional wire lines for the first time as the wireless industry continues to grow in reach and profitability.
There were 18 million wireless subscribers at the end of 2006 -- about the same number of fixed access lines. That doesn't include more than 740,000 subscribers who have transferred to cable telephony services.
The surge in cellphone use has been extremely lucrative for the mobile phone industry, whose operating profits -- before taxes, interest and depreciation -- increased by 67 per cent to $1 billion in the last quarter of 2006 from a year earlier, Statistics Canada said in a report issued Monday.
"The wireless industry has had robust growth and the wireline industry, even though we've seen some downturn in it, it's still fairly stable,'' agency analyst Cimeron McDonald said in an interview.
In the traditional phone industry, quarterly profits fell 24 per cent to $675 million as revenue declined 1.5 per cent to $5.6 billion, while wireless revenue grew by 16.2 per cent to $3.4 billion.
The higher margin wireless industry saw its operating profits grow by 41 per cent last year to $4 billion while wireline earnings declined 14 per cent to $3.5 billion despite recording $10 billion in additional revenues, the agency said.
The financial shift has been particularly challenging for Bell Canada, which has struggled to keep up with its wireless competitors as it hemorrhages wirelines customers.
A Bell spokesman said growth services such as wireless now account for the majority of the company's revenues.
"Landline loss is a situation faced by major telephone companies across North America and worldwide but it's worth noting that Bell is slowing the erosion of land lines better than most companies,'' said Pierre Leclerc.
Wireline companies continues to offer an advantage by possessing the infrastructure to accommodate high-speed and high bandwidth services lacking in wireless, added McDonald.
"I would not say that the wireline industry is dying at this point.''
The shift in telephone use by Canadians has prompted strong competition among the major industry players _ Rogers Wireless (TSX:RCI.B), Bell Mobility (TSX:BCE) and Telus Mobility (TSX:T). It has also spawned regional providers such as Virgin Mobile, President's Choice Telecom and SaskTel.
The path to convergent phone usage has been growing since cellphone service was introduced in the mid-1980s.
By 1999 there were 18.7 wireless subscribers and 64.4 traditional wireline lines per 100 inhabitants. As of December 2006, those ratios were 55.1 and 55.3 per cent respectively.
The number of wireless subscribers increased 8.4 per cent last year, and customers on average spent more for their service.
The numbers demonstrate the increasing popularity of wireless service, said Peter Barnes, president of the Canadian Wireless Telecommunications Association.
"We certainly don't see any let up in that. It seems to be a steady growth figure.''
Over the past four to five years, annual subscriber growth has exceeded 12 per cent.
Even though Canada's penetration of cellphone use is lower than other countries, Canadians are the second highest users of wireless minutes among the 30 OECD countries, he added.
The use of cellphones for text messaging exploded last year as new uses such as video downloads and TV displays promise further gains.
"What we're seeing is a broadening of the use of the cellphone from just a voice telephone to a data terminal,'' he said.
While the wireless industry enjoys strong growth, it has only recently been free cash flow positive, said an analyst who didn't want to be identified.
"It's a very attractive, high-growth business (but) that doesn't mean it's going to remain that way,'' he said.
Voice revenues per subscriber are declining even though revenues from data transfer is growing.
