Economic Analysis - Telus

Economic Analysis

There are many economic factors that can impact the performance of TELUS as well as the whole telecom industry. Possible factors include, consumer confidence and spending, increased competition, economic recessions and technology risks among the industry (Rogers 2013). All these factors affect TELUS’ bottom line and to what degree is important in understanding the risks TELUS is exposed to within the economy in operates in.

        TELUS’s business relies heavily on consumer confidence and spending (TELUS 2013). Recessions will cause economic uncertainty and can erode consumer and business confidence and ultimately reduce discretionary spending (Rogers). This will obviously impact TELUS in a negative way since the reduction in consumer confidence may lower demand for their product and services and lead to a higher churn rate. During a recession, governments will usually cut budgets, businesses will struggle and unemployment will rise. The resulting effect usually involves those that are still in work to start saving more (Johanides, 2012). When people are saving more and spending less, demand for the products and services offered by TELUS will depreciate. One argument against this however, is that in today’s society, a large majority of people use cell phones or other wireless/wireline related services provided by telecom companies regardless of the economic state. According to Statistics Canada, in 2013, 83% of Canadian households had an active cellphone, up from 78% in 2010 and this number continues to trend upwards (Statistics Canada, 2014). Since cellphones have practically become a necessity, there will always be a demand for cellphones (Siddiqui, Jabeen, Mumtaz, 2014). The risks that TELUS and its competitors (Rogers and Bell) may encounter are losing its customers to lower costing plans since consumers may seek lower competitive prices (Rogers).

With the increase in competition within the industry, price plays an important factor in retaining customers and acquiring new ones from competitors. With a weaker economy, there is an even larger emphasis on providing a superior service at a cheaper price relative to the competition (CRTC, 2014). When it comes to price comparison between incumbents, there is not much difference between the services they provide and the prices offered. However, there is a significant difference in the prices at which the new entrants in each major province is offering their products versus the incumbents (CRTC).  For example, Canadian mobile Internet service rates are offered by new entrants at significantly lower prices. Customers in major cities such as Vancouver, Toronto and Montreal will see between 20%-26% lower monthly prices in the 2GB/month plans and 26%-44% lower prices on the 5GB/month plans. Obviously these cheaper prices come with their own limitations, as quality of service may not be in comparison between new entrant companies and established industry leading companies. In times economic hardship, it is possible that consumers may seek lower price alternatives and new entrant companies may be the solution. Furthermore, there is no assurance for these larger telecom companies such as TELUS, Rogers and Bell that future competitors will enter the market space with superior services at lower prices, adapt more quickly to evolving industry trends or just simply offer competing services to put downward pressure on current prices (Rogers).