Canada’s telecom sector expected to face weaker profits

OTTAWA — The telecom sector will take it on the chin this year as increased competition from new wireless carriers forces some companies to slash mobile phone pricing even as their costs increase, the Conference Board of Canada predicts.

OTTAWA — The telecom sector will take it on the chin this year as increased competition from new wireless carriers forces some companies to slash mobile phone pricing even as their costs increase, the Conference Board of Canada predicts.

An industry outlook report from the think-tank released Monday says that profits for telecommunications companies will weaken to $6.7 billion this year. That’s down from a $7-billion profit reported last year.

Major providers like Rogers (TSX:RCI.B), Bell (TSX:BCE) and Telus (TSX:T) are contending with a rush of new entrants including Globalive’s Wind Mobile and Public Mobile.

“Competition will limit price increases for both telecoms and computer services firms,” said Conference Board economist Maxim Armstrong in a release.

“New entrants into the Canadian wireless market are also forcing telephone service providers to control escalating costs and make investments in new technologies.”

The Big Three providers had anticipated the heightened competition and invested in their infrastructure and slashed billing prices before the new entrants came to the market.

The Conference Board says it expects overall costs to grow by five per cent this year due to higher interest rates and increased wages.

However, cost increases are expected to slow next year, growing at an average rate of 3.7 per cent between 2011 and 2014.

Outside the telecom sector, other information technology companies are expected to feel the post-recession pinch.

In a separate report Monday the think-tank highlighted the rising costs also facing the computer systems design industry, which includes software and website developers.

Profits are expected to slip to $1.3 billion this year, the third consecutive annual decline, even though revenues will likely improve.

“As profitability and business confidence improve in 2011, (computer systems) companies will begin to invest more aggressively in expanding and renewing their technological infrastructure, which in turn will benefit the computer systems design industry,” the report said.

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