q & a
questions & answers
Competition is heating up for local residential telephone service with more people migrating to wireless phones as well as with the ongoing launch of IP-based cable telephony by your major cable-TV provider. What is the impact on TELUS, and how are you responding?
Competition is indeed intensifying in the traditional local and long distance markets industry-wide. The popularity and convenience of wireless technology are persuading more Canadians to move to wireless services and give up their home phone. TELUS is also now competing with new IP telephony service providers, the most capable of which is cable-TV company Shaw Communications.
The impact of wireless substitution and IP telephony was anticipated by TELUS with an expected increase in network access line (NAL) losses and increasing pressure on local and long distance voice revenues. In 2005, the Shaw launch of cable telephony in Calgary and Edmonton, Alberta and Victoria, B.C. contributed to TELUS losing 110,000 or 3.6% of its residential lines, compared to 1.3% in 2004. With Shaw launching in the large Vancouver, B.C. market in January and potentially other smaller cities, we expect NAL erosion to moderately increase in 2006.
However, TELUS is well positioned to weather the increase in wireline competition. Since 2000, we have focused on a national strategy based on data, IP and wireless growth. By the end of 2005, data and wireless accounted for more than 59% of total revenues, compared to only 28% in 2000. We also continue to experience growth in Central Canada. The increases in wireless and data revenues are expected to be much higher than the declines we expect in local and long distance services.
In terms of wireless substitution of local phone lines, TELUS is a net beneficiary on a consolidated basis. Let me explain. In our incumbent regions, we capture a solid portion of the business that comes from customers migrating from wireline to wireless phones. In our non-incumbent regions in Canada, where the market is three times larger, we enjoy a 100% gain in customers who choose TELUS wireless as their primary phone.
As shown in the bar chart, TELUS in the past has been successful in more than offsetting the losses in residential NALs and dial-up Internet subscribers through growth in wireless and high-speed Internet subscribers.
In the consumer wireline market, TELUS is prepared for increased competition from IP telephony. Telephony is our core business and TELUS provides a full-service package of reliable and innovative solutions. This is an integrated quadruple-play consumer offering that includes local and long distance, high-speed Internet, wireless service, and now TELUS TV in certain areas. Our Future Friendly Home products and services deliver enhanced functionality and convenience for consumers, and increased revenues and customer loyalty for TELUS. Furthermore, we expect to enhance customer service as a result of significant information technology and system investments, and the increased flexibility afforded by the new collective agreement reached in late 2005.
Over the past five years, TELUS has also increased operational efficiency with productivity-enhancing measures. These measures are meant to ensure costs are aligned with market pressures to maintain wireline profitability in the face of increased competition.
A silver lining in increased wireline competition is that it may lead to less regulation and give TELUS increased flexibility to market wireline services.
So, while TELUS expects continued challenges in maintaining local market share, we are confident in our wireless, data and IP growth strategy, differentiated by a full and integrated suite of services. We believe this strategy will create new revenue streams and mitigate our competitive losses.
John Watson
Executive Vice-President
and President, Consumer Solutions
Member of the TELUS Team