Canadian Telecoms Pivot to Tech Services

The Canadian telecommunications landscape, long defined by a fierce tug-of-war for cellphone and internet subscribers, is undergoing a profound metamorphosis.

The familiar boasts of broadband speeds and network coverage are giving way to a new battleground: technology services, with artificial intelligence leading the charge.

This isn’t merely an evolution; it’s a strategic pivot, a fundamental reimagining of what it means to be a telecom giant in the 21st century.

As industry watchers and company executives attest, Canada’s leading carriers are no longer content to be just “telcos”; they are striving to become “tech-cos”.

For decades, the quarterly reports of Bell, Rogers, and Telus have been scrutinized for gains in subscriber numbers – a zero-sum game often won through aggressive promotions and bundling.

But the wellspring of traditional growth is drying up.

As Peter Cramton, an emeritus professor of economics at the University of Maryland, observed at a recent telecom seminar in Toronto, global tech companies have vastly outpaced carriers over the past decade by “expanding across domains” to achieve exponential customer growth.

Telecoms, by contrast, have grappled with market saturation, where nearly every Canadian is already a customer.

“We’ve got 100 per cent penetration,” Cramton noted, highlighting the inherent limit to exponential customer expansion in their core business.

This saturation has been compounded by a “double whammy,” as Dave Heger, a senior equity analyst at Edward Jones, describes it.

The emergence of Quebecor Inc.’s Videotron as a fourth national player has intensified competition, driving down consumer prices and eroding market share for the established Big Three.

Simultaneously, a recent scaling back of federal immigration targets – a demographic factor previously relied upon for steady customer additions – has further dampened subscriber growth, a point explicitly cited by major providers in recent earnings calls.

The writing on the wall is clear: the old playbook is no longer sufficient.

Enter the world of technology.

Gérard Pogorel, an economics professor at France’s Télécom Paris institute, articulates the ambition succinctly: “The big innovation comes from tech. The dream of service telcos is… to behave like tech people.”

This isn’t just about offering better connectivity; it’s about leveraging that connectivity to power entirely new services and industries.

Artificial intelligence, in particular, has emerged as a cornerstone of this new growth strategy.

Bell Canada, for instance, has publicly committed to transforming into a company focused primarily on tech services beyond its core offerings.

This commitment is tangible: the recent launch of its Ateko brand unified acquired tech companies like FX Innovation and CloudKettle, and a landmark announcement last month revealed plans for six new AI data centres, part of Canada’s largest AI compute project.

Desjardins analyst Jerome Dubreuil points to “sovereign AI“—where an entity builds and operates its own AI systems—as an “emerging theme for telcos,” envisioning Canadian organizations partnering with local operators who can seamlessly integrate telecom services with cutting-edge data capabilities.

This strategic pivot also involves a significant re-evaluation of asset mixes.

While media and sports assets were once key diversification areas for some Canadian telecoms, the trend is now towards shedding physical infrastructure.

BCE Inc., Bell’s owner, has notably divested its stake in Maple Leaf Sports & Entertainment and streamlined its media division, selling off 45 radio stations and ending some TV newscasts.

Similarly, Telus Corp. is exploring the sale of a minority stake in its wireless towers, and Rogers Communications Inc. is doing the same with a portion of its network infrastructure.

Pogorel calls this divestment of physical resources a “massive phenomenon” globally.

By generating cash through these sales, carriers can reduce debt and, crucially, free up capital to invest in adjacent, non-traditional sectors.

“A purely service telco travels light,” Pogorel explains, “It doesn’t have the burden of multibillion-dollar infrastructure.

Travelling light, they… are more able to innovate.”

This is a profound shift from the traditional model where ownership of vast physical networks was the ultimate competitive advantage.

Erik Bohlin, Ivey’s chair in telecommunication economics, policy and regulation, encapsulates this paradigm shift.

“These big telcos are moving away from their infrastructure to becoming more and more software companies,” he noted in an interview.

The long-cherished Canadian ideal of fierce infrastructure competition, he suggests, “might be tapering off just because of what is going on in technology.”

Telus exemplifies this transition with its own deep dive into tech services.

Beyond its plans for two new AI data centres, the company has made significant inroads with its Telus Health and Telus Agriculture subsidiaries.

Carlos Cabrero, director of customer experience excellence for Telus Agriculture and Consumer Goods, often fields questions from non-Canadians baffled by a telecom’s foray into farming.

Yet, he argues, both agriculture and health are “historically underserved from a technological perspective,” presenting vast opportunities for innovation by leveraging Telus’s core competencies in technology and communication.

Heger concurs, seeing these forays as adding growth opportunities “over and above what’s available to them in the telecom industry.”

However, this ambitious leap into the tech frontier is not without its caveats.

Bohlin, while praising the carriers’ vision, tempers expectations.

It’s unlikely, he suggests, that Canadian telecoms will suddenly become global leaders in producing AI software, given the established dominance of tech behemoths in that sector.

“There are plenty of opportunities here, but it’s not like a gold mine,” he cautioned, adding that it won’t propel growth in the same way the mobile revolution did.

Yet, he sees a clear path for them to carve out valuable niches by leveraging their fundamental strength: delivering connectivity.

This could involve partnering with businesses in sectors like mining or developing sophisticated Internet of Things (IoT) applications that rely heavily on robust network solutions.

This pursuit of new customer bases in diversified fields must also strike a delicate balance with the ongoing imperative to invest in their core telecom networks.

These networks, Bohlin reminds us, are the bedrock of modern society, often taken for granted.

“The telcos are in a very important role for society but they are being pressured from all directions,” he states, underscoring the complex tightrope walk these companies must navigate.

The future of Canada’s telecom giants hinges not just on their ability to embrace cutting-edge technology, but also on their capacity to redefine their very essence, shedding legacy burdens while steadfastly maintaining the vital arteries of national communication.

It’s a high-stakes gamble, but one that promises to reshape Canada’s digital economy for decades to come.